If prepaid expenses are shown as having a positive effect on cash flow,it is because prepaid expenses increased during the year.

Question

Quizplus · Accepted Answer

Prepaid expenses represent payments made in advance for goods or services to be received in the future. When prepaid expenses increase, it means cash is used to make these payments, thus reducing the cash balance. This is considered a use of cash, not a source, and would not have a positive effect on cash flow.

If Prepaid Expenses Are Shown as Having a Positive Effect