The Statement of Cash Flows Can Be Drawn Up Using

Multiple Choice

The statement of cash flows can be drawn up using either the direct method or the indirect method. Under the indirect method, the total inflows and outflows from operations are ignored and the operating profit for a period is adjusted for increases or decreases in inventory, receivables, prepayments, payables and accruals and for the effect of non-cash items. Which one of the following statements is true?

A) Under the indirect method, an increase in trade receivables is added to the operating profit for the accounting period.
B) Under the indirect method, an increase in trade payables is deducted from the operating profit for the accounting period.
C) Under the indirect method, an increase in prepayments is deducted from the operating profit for the accounting period.
D) Under the indirect method, a decrease in accruals is added to the operating profit for the accounting period.