Question

During the year, Kaplan Pharma increased its accounts receivable by $200, decreased its inventory by $100, and decreased its accounts payable by $110. How did these three accounts affect the sources of uses of cash by the firm?

Answer 1

1) Accounts receivable increased by $200, will decrease the cash because the company has sold the inventory on credit which is recorded as revenue but actual flow was not there. so to offset it cash flow from operating activities will be decreased by $200

- cash Decrease by $200 , uses of cash

2) Decrease in Inventory will increase the cash balance. because the inventory has been sold it would have been recorded as an expense (COGS) and might have decrease the net income. So, cash flow from operating activities should be increased by the decrease in inventory $100

- Cash Increase by $100, source of cash

3) Accounts payable decrease by $110 will decreases the cash because suppliers has been paid off.which will reduce the cash balance.

- Cash decrease by $100 , Uses of cash