Question

if manufacturing expenses are 20000, interest expenses rs 4000, cash sales is rs 30000. increase in inventory and debtors is Rs 5000 and Rs 7000 respectively. While increase in accounts payable is 9000. Calculate the cash flow from operations?

Answer 1

Solution:

Cash sales  - Increase in inventory - Increase in debtors + Increase in account payable + manufacturing expense + interest expenses = Cash flow  

30000 Rs – 5000 Rs -7000 Rs +9000 Rs +20000 Rs +4000 Rs = 51000 Rs

Answer: Total cash flow from the operation is  Rs 51,000.

Answer 2

Answer:

Rs. 3000

Explanation:

Net Cash Flow = (increase in cash reserves + incoming cash) - (outgoing cash + cash yet to be realized) = $9k +30k - ((20k +5k +4k)+7k)=3k$ where $k=1000$

Cash reserves increase

Increase in accounts payable: 9k

This means that there is a net increase in accounts payable by rs. 9k, which in other word means, you have not spent that 9k as of now and it is there with you as a cash reserve

Incoming cash

Cash Sales: 30k

Outgoing Cash

Manufacturing Expense: 20k

Increase in inventory: 5k , as you may have incurred for manufacturing those extra goods that could not be sold during the period and resulted in an increase in the inventory

Interest Expense: 4k

Cash yet to be realized

Increase in debtors: 7k

This means that the cash of 7k is still pending to be received from somebody and is not with you and thus a deficit in your cash reserve.