RG's E-Learning Centre · Book a free demo class · WhatsApp +91-9379416374

Cash from operating activities (indirect method): Class 12 practice

Start with net profit before tax, add back non-cash expenses (depreciation, goodwill written off) and losses on sale of assets, then adjust for working-capital changes: increase in current assets is subtracted, increase in current liabilities is added.. Read the method, follow the three worked examples, then try the six questions.

What you should know first

  • Profit and loss account

The idea behind cash from operating activities (indirect method)

Start with net profit before tax, add back non-cash expenses (depreciation, goodwill written off) and losses on sale of assets, then adjust for working-capital changes: increase in current assets is subtracted, increase in current liabilities is added.

Step-by-step method

  1. Net profit before tax.
  2. Add depreciation and non-operating losses; subtract non-operating gains.
  3. − increase in debtors/inventory, + increase in creditors.
  4. Subtract tax paid.

Worked example 1 (Basic)

Net profit before tax ₹2,60,000, depreciation ₹30,000, debtors increased by ₹15,000, creditors increased by ₹20,000. Find cash from operating activities.

  1. ₹2,60,000 + ₹30,000
  2. − ₹15,000 (debtors)
  3. + ₹20,000 (creditors)
  4. = ₹2,95,000
  5. Answer: ₹2,95,000

Worked example 2 (Standard)

Net profit before tax ₹2,70,000, depreciation ₹10,000, debtors increased by ₹15,000, creditors decreased by ₹15,000. Find cash from operating activities.

  1. ₹2,70,000 + ₹10,000
  2. − ₹15,000 (debtors)
  3. − ₹15,000 (creditors)
  4. = ₹2,50,000
  5. Answer: ₹2,50,000

Worked example 3 (Challenge)

Net profit before tax ₹60,000, depreciation ₹10,000, debtors decreased by ₹10,000, creditors increased by ₹0, tax paid ₹10,000. Find cash from operating activities.

  1. ₹60,000 + ₹10,000
  2. + ₹10,000 (debtors)
  3. + ₹0 (creditors)
  4. − ₹10,000 tax
  5. = ₹70,000
  6. Answer: ₹70,000

Common mistakes and misconceptions

  • Adding an increase in debtors
  • Forgetting depreciation

Practice questions

  1. (Basic) Net profit before tax ₹2,80,000, depreciation ₹40,000, debtors increased by ₹0, creditors decreased by ₹15,000. Find cash from operating activities.
  2. (Basic) Net profit before tax ₹50,000, depreciation ₹30,000, debtors increased by ₹25,000, creditors increased by ₹5,000. Find cash from operating activities.
  3. (Standard) Net profit before tax ₹2,00,000, depreciation ₹40,000, debtors decreased by ₹15,000, creditors decreased by ₹5,000. Find cash from operating activities.
  4. (Standard) Net profit before tax ₹1,00,000, depreciation ₹30,000, debtors increased by ₹25,000, creditors decreased by ₹5,000. Find cash from operating activities.
  5. (Challenge) Net profit before tax ₹70,000, depreciation ₹30,000, debtors increased by ₹5,000, creditors decreased by ₹10,000, tax paid ₹10,000. Find cash from operating activities.
  6. (Challenge) Net profit before tax ₹1,10,000, depreciation ₹50,000, debtors increased by ₹10,000, creditors increased by ₹0, tax paid ₹20,000. Find cash from operating activities.

Answer key with full working

  • Q1: ₹2,80,000 + ₹40,000 → − ₹0 (debtors) → − ₹15,000 (creditors) → = ₹3,05,000 → Answer: ₹3,05,000
  • Q2: ₹50,000 + ₹30,000 → − ₹25,000 (debtors) → + ₹5,000 (creditors) → = ₹60,000 → Answer: ₹60,000
  • Q3: ₹2,00,000 + ₹40,000 → + ₹15,000 (debtors) → − ₹5,000 (creditors) → = ₹2,50,000 → Answer: ₹2,50,000
  • Q4: ₹1,00,000 + ₹30,000 → − ₹25,000 (debtors) → − ₹5,000 (creditors) → = ₹1,00,000 → Answer: ₹1,00,000
  • Q5: ₹70,000 + ₹30,000 → − ₹5,000 (debtors) → − ₹10,000 (creditors) → − ₹10,000 tax → = ₹75,000 → Answer: ₹75,000
  • Q6: ₹1,10,000 + ₹50,000 → − ₹10,000 (debtors) → + ₹0 (creditors) → − ₹20,000 tax → = ₹1,30,000 → Answer: ₹1,30,000

Syllabus note

This skill is listed under "Cash Flow Statement" for Class 12 in the NCERT/CBSE books. ICSE, IGCSE, IB and state boards may teach it in a different chapter or year.

Answers on this page are generated and automatically re-checked by a second, independent calculation. They have not been reviewed by a teacher — if you spot a problem, tell us on WhatsApp.

Related practice and notes

Frequently asked questions

Which chapter is cash from operating activities (indirect method) in?

"Cash Flow Statement", Class 12 Accountancy (NCERT/CBSE). Other boards may place it differently.

How were the answers checked?

Answers on this page are generated and automatically re-checked by a second, independent calculation. They have not been reviewed by a teacher — if you spot a problem, tell us on WhatsApp.

Book a free demo class