Business Studies

Which of the following is true with respect to sources and uses of funds?


ANSWER

Depreciation and decrease in NWC are sources of funds


SOLUTION
As per the accounting principles to ascertain the profits of the firm, depreciation on fixed assets should be charged against the revenue of the fir by debiting to the profit and loss account. This reduces the profits of the firm. But charging depreciation does not involves any fund. Therefore, the amount of depreciation charged against the revenue of the firm should be  added back to the net profit to estimate the funds from operations, which is a source of fund. Decrease in net working capital is a source of fund.
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Single Correct Medium Published on 18th 08, 2020
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