Arrange the following in a sequence to determine Cash Flow from Opera…

Arrange the following in a sequence to determine Cash Flow from Operating Activities in case there is no provision for tax.

(A) Net Cash From Operating Activities
(B) Net Profit before Taxation
(C) Adjustments for working Capital Changes
(D) Adjustment for Non Cash and Non Operating Items
(E) Operating Profit before Working Capital

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → (B), (D), (E), (C), (A)

The indirect method starts from the profit figure, removes the effect of non-cash and non-operating items, and then adjusts for changes in current assets and current liabilities.

(B) Net Profit before Taxation — the starting point.
(D) Adjustment for Non Cash and Non Operating Items — depreciation is added back, non-operating incomes are deducted.
(E) Operating Profit before Working Capital — the result of the first two steps.
(C) Adjustments for working Capital Changes — increases and decreases in current assets and current liabilities.
(A) Net Cash From Operating Activities — the final figure (with no tax provision, nothing is deducted for tax).

NCERT (2026-27 edition):
Ascertaining Cash Flow from Operating Activities – “… It is important to mention here that under indirect method, the starting point is net profit/loss before taxation and extra ordinary items as per Statement of Profit and Loss of the enterprise. Then this amount is for non-cash items, etc., adjusted for ascertaining cash flows from operating activities.”

NCERT (2026-27 edition):
Ascertaining Cash Flow from Operating Activities – “… Other important adjustments relate to changes in working capital which are necessary (i.e., items of current assets and current liabilities) to convert net profit/loss which is based on accrual basis into cash flows from operating activities. Therefore, the increase in current assets and decrease in current liabilities are deducted from the operating profit, and the decrease in current assets and increase in current liabilities are added to the operating profit so as to arrive at the exact amount of net cash flow from operating activities.”

NCERT (2026-27 edition):
Cash Flows from Operating Activities

Extract from the NCERT textbook