When using the indirect method in preparing the statement of cash flows, increases in inventory, trade receivables and prepayments are deducted from operating profit while increases in trade payables, accruals and provisions are added to operating profit.

Question

Quizplus · Accepted Answer

In the indirect method, increases in current assets like inventory and receivables are deducted because they represent cash outflows, while increases in current liabilities like payables and accruals are added as they represent cash inflows.

When Using the Indirect Method in Preparing the Statement of Cash