From two statements of financial position and additional information, prepare a statement of cash flows using the indirect method.

How to lay out the answer. Follow the frame, then write it in your own words.

1 · Start with profit. Profit for the year (before interest and tax for a company).
2 · Add back non-cash items. Depreciation (the change in accumulated depreciation if there are no disposals); losses on disposal.
3 · Adjust for working capital.
- Increase in inventory or receivables: subtract; decrease: add.
- Increase in payables: add; decrease: subtract.
4 · Investing activities. Purchases and sales of non-current assets.
5 · Financing activities. New capital, drawings, loans raised or repaid.
6 · Net change in cash. Total of the three sections.
7 · Reconcile. Opening cash + net change = closing cash.

Scoring tip: Put brackets round every outflow; a clean sign convention avoids most errors.