Neglience claim

It really depends upon how the entity has treated the out-of-court settlement payment … and also it depends upon how much was paid in this settlement

Assuming that the payment was for $200 (ie exactly the amount of the figure in the provision account), your entry would work Dr Provision Account and Cr Bank / Cash

This would in effect be a short cut for the technically more detailed entries of:

Dr Provision Account 200
Cr Statement of profit or loss 200
being the elimination of the provision no longer required

and

Dr Expense Account for (probably) Wages and Salaries 200
Cr Cash 200
being the settlement of the claim of a former employee

As these are the entries that now remove the need to maintain a provision account in respect of this prospective payment to the former employee, I suggest that the more appropriate siting for the adjustments would be:

in arriving at Net Cash Flow from Operating Activities there should be a deduction of the non-cash item of 200 that will have been credited in arriving at profit before taxation and

also in the section for arriving at Net Cash Flow from Operating Activities there should be a cash outflow of 200 in respect of the settlement of the obligation

As for including the adjustment within the Changes in Working Capital in arriving at Net Cash Flow from Operating Activities… why would you? Why not leave it as it is and show it separately as a credit for a provision no longer required and an outflow in respect of the settlement of the out-of-court payment?

OK?