READ THE FOLLOWING PASSAGE AND ANSWER THE FOLLOWING QUESTION.
The profit of a company is ₹90,000 after taking into account the following items:
| Particulars | Beginning of the year (₹) | End of the year (₹) |
| Bills Receivables | 40,000 | 50,000 |
| Creditors | 30,000 | 50,000 |
| Debtors | 50,000 | 30,000 |
| * Patents written off ₹40,000 |
| * Profit on sale of fixed assets ₹10,000 |
| * Depreciation on fixed assets ₹40,000 |
| * Interest paid on debentures ₹40,000 |
How will you treat debtors while preparing the cash flow statement?
Answer & explanation
Correct answer: option 1
The correct answer is option 1- Added back to operating profit before working capital changes.
Decrease in debtors by ₹20000 is added back to operating profit before working capital changes because 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.