Accountancy Part BCash Flow Statement

While computing cash from operations, which item will not affect the…

While computing cash from operations, which item will not affect the cash from operations?

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → Increase in share capital

Cash from operations is adjusted only for changes in current assets and current liabilities. Money raised by issuing shares is a financing activity, so it does not touch cash from operations.

Option (1) Increase in value of prepaid expenses — Affects cash from operations. An increase in a current asset is deducted.

Option (2) Decrease in value of Inventory — Affects cash from operations. A decrease in a current asset is added.

Option (4) Increase in value of trade receivables — Affects cash from operations. An increase in a current asset is deducted.

NCERT (2026-27 edition):
Cash from Financing Activities – “As the name suggests, financing activities relate to long-term funds or capital of an enterprise, e.g., cash proceeds from issue of equity shares, debentures, raising long-term bank loans, repayment of bank loan, etc.”

NCERT (2026-27 edition):
Ascertaining Cash Flow from Operating Activities – “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.”