Question

After the next year, the account balances change as follow: Long-term debt: DECREASED by $2,000 Accounts payable: DECREASED by $2,000 Long-term assets: DECREASED by $1,000 Accounts receivable: DECREASED by $2,000 Inventory: DECREASED by $3,000 Based on these changes, what impact did they have on your company's OPERATING CASH FLOW?

Answer 1

Long-term debt: DECREASED by $2,000

⇒ DOESN'T AFFECT OPERATING CASH FLOW SINCE IT IS A FINANCIAL ACTIVITY (DECREASES CASH FLOW FORM FINANCIAL ACTIVITIES)

Accounts payable: DECREASED by $2,000

⇒ DECREASES OPERATING CASH FLOW

Long-term assets: DECREASED by $1,000

⇒ DOESN'T AFFECT OPERATING CASH FLOW SINCE IT IS AN INVESTING ACTIVITY (INCREASES CASH FLOW FORM INVESTING ACTIVITIES)

Accounts receivable: DECREASED by $2,000

⇒ INCREASES OPERATING CASH FLOW

Inventory: DECREASED by $3,000

⇒ INCREASES OPERATING CASH FLOW