The Indirect Method of Calculation of the Cash Flow from Operations

question 14

Multiple Choice

The indirect method of calculation of the cash flow from operations consists of the following steps

• A) Start with reported profit after taxes and add-back depreciation allowance for the period.
• B) Start with reported profit after taxes,add-back accumulated depreciation,add-back non-cash costs and adjust for the variations of balances of accounts receivable,accounts payable and inventories between the beginning and the closing of the period.
• C) Start with reported profit after taxes,add-back depreciation allowance,add-back non-cash costs and adjust for the variations of balances of accounts receivable,accounts payable and inventories between the beginning and the closing of the period.
• D) Start with reported profit after taxes,add-back depreciation allowance,add-back interest expenses net of tax shield,and adjust for the variations of balances of accounts receivable,accounts payable and inventories between the beginning and the closing of the period.

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Definitions:

Ordering Cost

Expenses incurred when placing an order for goods or services, including administrative costs and the cost of processing payments.

EOQ Analysis

Economic Order Quantity Analysis, a tool used in inventory management to determine the optimal order quantity that minimizes the total cost of inventory, including holding and ordering costs.

Carrying Costs

Expenses associated with maintaining inventory, including storage, insurance, and spoilage costs.