Question:

If the net profit earned during the year is ₹ 1,00,000 and the amount of Bills receivables in the beginning and the end of the year is ₹ 20,000 and ₹ 40,000 respectively, then cash flow from operating activities will be:

Updated On: May 9, 2025

₹ 60,000
₹ 1,00,000
₹ 80,000
₹ 1,20,000

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The Correct Option is C

Solution and Explanation

To calculate the cash flow from operating activities, we need to adjust the net profit by changes in working capital components like Bills Receivables. The net profit is ₹ 1,00,000. We'll examine the change in Bills Receivables:

1. Beginning Bills Receivables: ₹ 20,000

2. Ending Bills Receivables: ₹ 40,000

An increase in Bills Receivables indicates cash has not yet been received, meaning the cash flow from operating activities decreases. The increase is:

Increase in Bills Receivables = ₹ 40,000 - ₹ 20,000 = ₹ 20,000

3. Adjust Net Profit:

Cash Flow from Operating Activities = Net Profit - Increase in Bills Receivables

Cash Flow from Operating Activities = ₹ 1,00,000 - ₹ 20,000

Cash Flow from Operating Activities = ₹ 80,000

Thus, the cash flow from operating activities is ₹ 80,000.

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If the net profit earned during the year is ₹ 1,00,000 and the amount of Bills receivables in the beginning and the end of the year is ₹ 20,000 and ₹ 40,000 respectively, then cash flow from operating activities will be:

The Correct Option is C

Solution and Explanation

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