Identify the correct sequence to be followed while calculating net cash from operating activities from following:
(A) Calculation of cash generated from operation
(B) Adjustment for non operating/non cash charges
(C) Calculation of net profit before taxation and extraordinary items
(D) Calculation of operating profit before working capital changes
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (C), (B), (D), (A)
Under the indirect method, net cash from operating activities is built up from the profit figure in a fixed order:
(C) Calculation of net profit before taxation and extraordinary items — the starting point.
(B) Adjustment for non operating/non cash charges — items such as depreciation and interest are added back or taken out.
(D) Calculation of operating profit before working capital changes — the result of those adjustments.
(A) Calculation of cash generated from operation — after adjusting for changes in current assets and current liabilities; income tax paid is then deducted to reach the net cash from operating activities.
NCERT (2026-27 edition):
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