Question

Technology Distributors reports net income of $64,000. Included in that number is depreciation expense of $14,500 and a loss on the sale of land of $5,900. A comparison of this year's and last year's balance sheets reveals a decrease in accounts receivable of $34,000, a decrease in inventory of $19,500, and an increase in accounts payable of $54,000.What effect does the decrease in accounts receivable have on cash flow?

a) Increases cash flow
b) Decreases cash flow
c) No effect on cash flow
d) Insufficient information to determine

Answer 1

The decrease in accounts receivable has a positive effect on cash flow by improving the company's liquidity and overall cash flow.

Step-by-step explanation:

The decrease in accounts receivable has a positive effect on cash flow as it represents a decrease in the amount of money owed to the company by its customers. When accounts receivable decreases, it means that the company has received cash for goods or services that were initially sold on credit. This increase in cash inflow improves the company's liquidity and overall cash flow.