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What is the treatment of provision in cashflow statement?
1. Should we add back the full amount just like we do with depreciation or
2. we record only the movement in provision as compared to last year or
3. we will apply both of the above treatments.I assume that you are referring to the allowance for receivables.
There is no adjustment made in the SOCF.
The reason is that although the increase in the allowance will have reduced the profit, at the same time the figures for receivables will be after subtracting the allowances and we adjust the profit by the change in the net receivables
Ok, you mean that the change will be reflected in accounts receivable while we record working capital movement for receivable. Right??
Another question of mine is that what about other provisions like warranty provision or provision for any court case etc.??
Warranty / court case
1. Add back expense in operating activities.
2. Deduct cash paid out in operating activities.
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