If the net profits earned during the year is Rs. 50,000 and the amount of debtors at the beginning and the end of the year is Rs. 10,000 and Rs. 20,000 respectively, then the cash from operating activities will be equal to:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs. 40,000.
Net profits = 50,000
Opening debtors = 10,000
Closing debtors = 20,000
Increase in debtors = Closing debtors - Opening debtors
= 20,000 - 10,000
= 10,000
Cash flow from operating activity = Net profits - Increase in debtors
= 50,000 - 10,000
= 40,000