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

Question

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Decreases in inventory, trade receivables, and prepayments represent an increase in cash, while decreases in trade payables, accruals, and provisions represent a decrease in cash. Therefore, these items are added and deducted from operating profit, respectively, when using the indirect method to prepare the statement of cash flows.

When Using the Indirect Method in Preparing the Statement of Cash