Question : Increase in prepaid insurance by Rs. 2,000 , will increase, decrease or have no effect on cash flow from operating activities while preparing 'Cash Flow Statement':
Option 1: Increase
Option 2: Decrease
Option 3: No effect
Option 4: None of the above
Correct Answer: Decrease
Solution : Answer = Decrease
An increase in prepaid insurance by Rs. 2,000 will
decrease cash flow from operating activities
when preparing the Cash Flow Statement. This is because prepaid insurance represents an outflow of cash that has already been paid for future expenses, thus reducing the cash available for operating activities in the current period.
Hence, the correct option is 2.