Why is an increase in asset accounts a cash outflow and increase in liabilities account a...
Why is an increase in asset accounts a cash outflow and increase in liabilities account a cash inflow?
Homework Answers
Increase in Liabilities is a source of cash, so cash flow increased by that amount. For example Increase in short-term notes payable brings cash to the firm so increases the Cash Inflow. The same with the accounts Payable, accrued Liabilities.
Increase in assets will increase in cash outflow because you will be paying something in cash for that increase. For example increase in accounts receivable requires the revenue to be recorded on the income statement to the extent of increase in accounts receivable but at that point the cash is not collected. Also increase in accounts receivable means you have extended credit to your customers and that's a use of funds.
So, hence increase in asset accounts a cash outflow and increase in liabilities account a cash inflow.
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Why is an increase in asset accounts a cash outflow and increase
in liabilities account a...
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Working capital accounts are current assets and current
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- the grand total is a $12,000 outflow)
EXERCISE 4: WORKING CAPITAL...
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Working capital accounts are current assets and current
liabilities.
Of the 13 accounts listed in the question, 7 are working capital
accounts, some involving an inflow of cash and some involving an
outflow of cash. Make a list of the 7 working capital accounts and
subdivide and subtotal your list into two categories, the number of
cash inflows and the number of cash outflows during the year. (Hint
- the grand total is a $12,000 outflow)
EXERCISE 4: WORKING CAPITAL...
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