Final answer:
When there is a decrease in current liabilities in operating cash flows, we subtract them. This reflects the fact that the company has paid off or reduced its short-term obligations, resulting in a decrease in cash outflows. The decrease in current liabilities should be subtracted to provide an accurate representation of the cash flow generated by the core business activities.
Step-by-step explanation:
When there is a decrease in current liabilities in operating cash flows, we subtract them. Current liabilities are debts or obligations that are expected to be settled within one year or the operating cycle of a business. Operating cash flows represent the cash generated or used by a company's core operations.
Subtracting a decrease in current liabilities from operating cash flows reflects the fact that the company has paid off or reduced its short-term obligations, resulting in a decrease in cash outflows. This decrease is important to analyze as it can impact a company's financial health and liquidity.
For example, if a company's accounts payable decreases, it means that the company has paid off some of its outstanding bills. This decrease in current liabilities should be subtracted from the operating cash flows to provide an accurate representation of the cash flow generated by the core business activities.