Question

On the cash flow statement, there is "Change in Net Working Capital". Can change in "Net Working Capital" be broken up into "Accounts Payable" and "Accounts Receivable". If so, where would accounts like PREPAID EXPENSES and DEFERRED REVENUE? Would they be considered Accounts Receivable?

What about ACCRUED EXPENSES? Would an accrued expense be considered A/P?

Answer 1

On the cash flow statement, there is "Change in Net Working Capital". This can certainly be broken into Accounts payable and Accounts Receivable.

Accounts Receivable and accounts payable are both part of Working Capital since these are short term in nature (current).

Accounts payable is a current liability and if the change in case of accounts payable is positive i.e. if the accounts payable increase, that means lesser accounts payable has been discharged during the year leading to increase in cash flows.

On the other hand, accounts receivable is an asset and if the change in case of accounts receivable is positive i.e. if the accounts receivable increase, that means more credit sales transactions has been entered during the year leading to decrease in cash flows.

Prepaid Expenses and deferred revenue shall be treated like accounts receivable since these are also assets.

Accrued expenses shall be treated like accounts payable since it is also a current liability.