Question

The statement of cash flows for Baldwin Company shows what happens in the Cash account during the year. It can be seen as a summary of the sources and uses of cash (sources of cash are added, uses of cash are subtracted). Please answer which of the following is true if Baldwin's accounts payable goes down (Select 1):

A. It is a source of cash and will be shown in the financing section as an addition.
B. It is a use of cash, and will be shown in the operating section as a subtraction.
C. It is a source of cash, and will be shown in the operating section as an addition.
D. It is a use of cash, and will be shown in the financing section as a subtraction.

Answer 1

Correct answer is (B)

Step-by-step explanation:

It is a use of cash, and will be shown in the operating section as a subtraction because a decrease in accounts payable would result in a corresponding decrease in Cash.