Question

Arrange the following in proper sequence while preparing Cash Flow Statement:,
(A) Net cash flow from operating activities
(B) Cash flow from financing activities
(C) Cash flow from investing activities
(D) Calculate net profit before tax and extraordinary items in working note
Choose the correct answer from the options given below :

• A. (A), (B), (C), (D)
• B. (D), (A), (C), (B)
• C. (B), (A), (D), (C)
• D. (C), (B), (D), (A)

Answer 1

The Correct Option is B

Sequence for Preparing a Cash Flow Statement  

Preparing a Statement of Cash Flows involves following a specific sequence of steps, guided by accounting standards, to ensure accuracy and completeness. This sequence builds upon the information derived from previous steps.

Steps in Preparing a Cash Flow Statement

1. (D) Calculate Net Profit Before Tax and Extraordinary Items:
   • Description: This is the starting point for determining cash flows from operating activities (under the indirect method). It involves calculating net profit before accounting for income taxes and any extraordinary gains or losses.
2. (A) Net Cash Flow from Operating Activities:
   • Description: This section determines the cash flows generated from the company's core business operations. It involves adjusting the net profit before tax for non-cash items (e.g., depreciation), changes in working capital (e.g., accounts receivable, inventory, accounts payable), and other operating-related activities.
3. (C) Cash Flow from Investing Activities:
   • Description: This section records cash flows related to the purchase and sale of long-term assets, such as property, plant, and equipment (PP&E), as well as investments in securities.
4. (B) Cash Flow from Financing Activities:
   • Description: This section includes cash flows related to how the company is financed, such as issuing or repaying debt, issuing or repurchasing stock, and paying dividends.

Correct Sequence

Therefore, the correct sequence is (D), (A), (C), (B).

Key Considerations

Following this sequence is crucial for ensuring that the Statement of Cash Flows accurately reflects the company's cash inflows and outflows during the reporting period and provides a clear understanding of its financial performance.

Answer 2

The correct sequence for preparing a Cash Flow Statement is: (D) Calculate net profit → (A) Net cash flow from operating activities → (C) Cash flow from investing activities → (B) Cash flow from financing activities.