If profit after tax is $28 000 and increases in inventory and accounts receivable total $17 000,the net cash flow from operating activities is:
A) outflow of $11 000.
B) inflow of $11 000.
C) inflow of $45 000.
D) outflow of $45 000.

Question

Quizplus · Accepted Answer

Net cash flow from operating activities is calculated by adjusting profit after tax for any non-cash expenses and changes in working capital accounts. In this case, inventory and accounts receivable increased by $17,000 which means that cash was tied up in those accounts. Therefore, we need to subtract $17,000 from profit after tax to calculate net cash flow from operating activities.

$28,000 - $17,000 = $11,000

Since the answer is positive, it means that there is an inflow of cash into the business, so the correct answer is B) inflow of $11,000.

If Profit After Tax Is $28 000 and Increases in Inventory