In the Indirect Method of preparing Cash Flow from Operating Activities, the standard sequence follows this logical flow:
Starting Point:
(B) Net Profit/Loss before Tax and Extraordinary Items - This is where we begin
↓
After Adjustments:
Add back non-cash expenses (like depreciation) and deduct non-operating income
This leads to → (C) Operating Profit before Working Capital Changes
↓
After Working Capital Adjustments:
Add/deduct changes in current assets and liabilities
Calculate Cash Generated from Operations
Then deduct → (A) Income Tax Paid
↓
Final Adjustment:
(D) Effects of Extraordinary Items relating to operating activity - This comes at the end to arrive at Net Cash from Operating Activities
Therefore, the correct sequence is: (B) → (C) → (A) → (D)
The logic is simple: Start with Net Profit → Make it operating profit → Deduct actual cash payment of tax → Adjust for extraordinary operating items.
Correct Answer: Option 2