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A business bank balance increased by $750 during last financial year. During the same period it issued shares of $1000 and repaid a loan note of $750.It purchased non-current assets for $200 and charged dep of $100.Working capital (other than the bank balance) incresed by $575.
What was the profit?Please don’t simply set me a test question. Presumably you have an answer in whichever book you found the question, and so ask about whichever part of the answer is giving you a problem.
I assume that you have watched the free lecture on Statement of cash flows?
Usually we start with the profit (under cash flows from operating activities), adjust it, and then bring in other cash flows, and end up with the change in the cash balance.
Here, we know the change in the cash balance and therefore work backwards to get to the profit.Sorry,the answer is (Increase in bank+Increase in working capital+Purchase of non-current asset+ Repayment of loan-Issued share-Dep)= Profit 1175.
But i want to know “working capital(other than the bank balance) increased” what does it means? why they add this?Have you watched the lectures? You did not answer.
Working capital is receivables, inventories, less payables.
If receivables increase then in the cash flow statement we subtract from the profit to get the cash generated from operations. So if we know the cash generated then we need to add the increase in order to get back to the profit figure.
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