While calculating cash flow from operating activities in the cash flow statement, which will be added back to the net profit of the company?
Answer & explanation
Correct answer: option 2
The correct answer is option 2- Increase in Creditors.
Increase in Creditors will be added back to the net profit of the company while calculating cash flow from operating activities in the cash flow statement.
As per AS-3, under indirect method, net cash flow from operating activities is determined by adjusting net profit or loss for the effect of changes in current assets and liabilities during the period. Increase in current assets and decrease in current liabilities are to be deducted while increase in current liabilities and decrease in current assets are to be added up.
Increase in creditors is a increase in current liability so it is added back. Other options are deducted.