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Exercise 349 from kaplan kit is asking what is the cash generated from operations.
Cash sales, cash purchases and expenses are given, as well as payables, wages and inventory.
the solution uses everything except the decrease in inventory, and I do not understand the reason since the cash generated from operations should include the decrease/increase in inventory
What is the explanation for this?
I do not have the Kaplan Kit (only the BPP Revision Kit).
However, without obviously having seen the question or the answer, I can only assume that because it gives cash sales and cash purchases the question is testing on the direct method of calculating the cash generated from operations. It is only when using the indirect method that we need to adjust for operating profit for the changes in inventory.
I do explain both methods in my free lectures on the Statement of Cash Flows.
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