Treatment of Preliminary Expenses in Cash Flow Statement

Confused, What is the accounting treatment of preliminary expenses in the cash flow statement.

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What are preliminary expenses

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Preliminary Expenses are expenses incurred at the time of the formation of a company. These expenses are written off in the year they are incurred.

Preliminary expenses are neither Investing nor Financing Activity. These are treated as extraordinary items under operating activities.

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Accounting treatment of Preliminary Expenses in Cash Flow Statement

The preliminary expenses if given in the question are added to determine Profit before tax and extraordinary items.

The same amount of preliminary expenses is subtracted from cash flow from operation to determine Cash flow from operating activities.

Thus the amount of preliminary expenses does not affect the cash flow from operating activities. as the same amount is first added and subtracted at the end to determine cash flow from operating activities.

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