Accountancy Part BCash Flow Statement

Identify a non cash item out of the following, shown in Cash Flow Sta…

Identify a non cash item out of the following, shown in Cash Flow Statement.

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → Depreciation

Depreciation is charged to the Statement of Profit and Loss but no cash goes out for it. Under the indirect method it is therefore added back to net profit while working out cash flow from operating activities.

Option (1) Gift items — Incorrect. This is not an item of the cash flow statement at all; goods given as gifts were paid for when bought.

Option (3) Debentures — Incorrect. Issue or redemption of debentures brings in or pays out cash, shown under financing activities.

Option (4) Finance cost — Incorrect. Interest is actually paid in cash; interest paid is shown as an outflow under financing activities.

NCERT (2026-27 edition):
Ascertaining Cash Flow from Operating Activities – “… 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 : Non-cash items such as depreciation, goodwill written-off, provisions, deferred taxes, etc., which are to be added back.”