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ACCA Applied Knowledge · Financial Accounting · Statement of cash flows (excluding partnerships)

For the year ended 31 December, Marlow Co had operating profit of $120,000 after charging depreciation of $30,000. Inventory increased from $40,000 to $52,000, trade receivables decreased from $35,000 to $28,000 and trade payables increased from $22,000 to $31,000. What is cash generated from operations?

Cash generated from operations is $154,000. Add depreciation of $30,000 to operating profit of $120,000, deduct the $12,000 inventory increase, and add the $7,000 receivables decrease and $9,000 payables increase, because those movements respectively use or release cash.

  1. A$154,000Correct
  2. B$142,000
  3. C$130,000
  4. D$166,000

Explanation

120,000 + 30,000 = 150,000. Inventory increase is a deduction of 12,000; receivables decrease adds 7,000; payables increase adds 9,000. 150,000 - 12,000 + 7,000 + 9,000 = $154,000. $142,000 results from treating the receivables decrease as a deduction... and $130,000 from omitting depreciation.

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