UK Change in account payable relating to fixed asset acquisition - for cash flow statement

[sissichu]

Hi all

I have a question regarding the cash flow statement (indirect method).

Under this method, for operating cash flows we need to add on the increase/(decrease) in account payable on the basis that the change in payable has been reflected in P&L but not cash flow.

However, my company has had a large fixed asset purchase on credit. This means the we debited fixed asset and credited payable, the P&L was not affected on the initial recognition.

Therefore, the movement on the payable to be added to operating profit to get operating cash flow is not going to be correct. However, I am not sure if I should adjust the movement of payable for any non-P&L item such as fixed asset purchase? If I do so, the movement in payable would not reconcile to balance sheet, is it?

Thanks for your help in advance.

 

[kirby]

Adjust the movement of payable and that of the fixed asset account to remove the effect of the non-cash transaction. Of course, the movement in payable will not reconcile to balance sheet but should not due to the non cash item.