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CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows I

An analyst is converting a company's cash flow statement from the indirect method to the direct method. Under IFRS, which of the following items would most likely be required as a starting point when computing cash collected from customers?

Cash collected from customers starts with revenue adjusted for the change in accounts receivable. An increase in receivables means revenue was not yet collected, so it is deducted. Cost of goods sold and inventory changes relate to payments to suppliers, and net income relates to the indirect method.

  1. ARevenue and the change in accounts receivableCorrect
  2. BNet income and depreciation expense
  3. CCost of goods sold and the change in inventory

Explanation

Cash collected from customers equals revenue minus the increase in accounts receivable (or plus a decrease). Net income and depreciation relate to the indirect method starting point, and cost of goods sold with inventory change is used for cash paid to suppliers, not collections.

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