Financial Statements - Assessment 1, Question 1.5 c

daniel489

For this question, the answer is £7500. But I'm not sure how to come to this answer. Can anybody help to explain?

Thanks!

CeeJaySix

Start from profit from operations 7,300.

Inventories have decreased, therefore you have more cash (as you didn't spend cash in the year on the difference, you just decreased existing holdings) - add the difference 500.

Receivables have increased, therefore you have less cash (as they still owe it to you) - deduct the difference (200).

Payables have decreased, therefore you have less cash (you have paid more of what you owe in comparison to last year) - deduct the difference (100).

Total 7,300 + 500 - 200 - 100 = 7,500.

daniel489

CeeJaySix said:

Start from profit from operations 7,300.

Inventories have decreased, therefore you have more cash (as you didn't spend cash in the year on the difference, you just decreased existing holdings) - add the difference 500.

Receivables have increased, therefore you have less cash (as they still owe it to you) - deduct the difference (200).

Payables have decreased, therefore you have less cash (you have paid more of what you owe in comparison to last year) - deduct the difference (100).

Total 7,300 + 500 - 200 - 100 = 7,500.

Thank you very much! Explained very well