During the year,Kitchen Supply increased its accounts receivable by $130,decreased its inventory by $75,and decreased its accounts payable by $40.How did these three accounts affect the firm's cash flows for the year?

Question

Quizplus · Accepted Answer

Increasing accounts receivable by $130 means the company has $130 more in sales that it hasn't yet received cash for, which is a use of cash. Decreasing inventory by $75 means the company has sold or otherwise reduced inventory without needing to spend cash to replace it, which is a source of cash. Decreasing accounts payable by $40 means the company has paid off some of its debts, which is a use of cash. The net effect is $130 (use) - $75 (source) + $40 (use) = $95 use of cash.

During the Year,Kitchen Supply Increased Its Accounts Receivable by $130,decreased