An increase in accounts payable represents an increase in net cash provided by operating activities,an effect similar to taking out a new bank loan.However,these two items show up in different sections of the statement of cash flows to reflect the difference between operating and financing activities.

Question

Quizplus · Accepted Answer

An increase in accounts payable indicates that a company is paying its suppliers more slowly, effectively retaining more cash in the business, which increases net cash provided by operating activities. This is similar to the immediate cash inflow from taking out a new loan. However, while the increase in accounts payable is reflected in the operating activities section of the cash flow statement, taking out a new loan is shown in the financing activities section, highlighting the distinction between operational cash flows and financing cash flows.

An Increase in Accounts Payable Represents an Increase in Net