A sole trader business, Smithson & Co., made a profit of £6800, after charging interest of £2600 and depreciation of £4800, in its financial year ended 31 August 20X8. At 31 August 20X7, Smithson's current assets (excluding cash) less current liabilities total (i.e.the total of inventory, trade receivables and trade payables) was £16 750.On 31 August 20X8 the equivalent total was £18 870.
What was Smithson's net cash inflow from operating activities for the year ended 31 August 20X8?
A)£16 320
B)£6 880
C)£12 080
D)£9 480

Question

Quizplus · Accepted Answer

The net cash inflow from operating activities is calculated by adjusting the profit for non-cash items and changes in working capital. Starting with the profit of £6800, add back non-cash expenses: interest (£2600) and depreciation (£4800). This gives £14,200. The change in working capital is £18,870 - £16,750 = £2,120 increase, which reduces cash flow. Thus, £14,200 - £2,120 = £12,080.

A Sole Trader Business, Smithson & Co