Question
A company earned net profits of Rs. 150,000 during the year. If the amount of debtors in the beginning and the end of the year is Rs. 1,10,000 and Rs. 1,20,000 respectively, then What will be the cash from operating activities of the company?
Solution
For arriving at the cash flow from operating activities, increase in current assets are subtracted, while decreases are added. Here the debtors is a current asset which has increased by Rs.10,000 (Rs.120,000-Rs.110,000). As such, the operating cash = net profit - increase in debtors = Rs.1,50,000 – 10,000 = Rs.140,000.
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