Changes in Other Current Liabilities
Any increase in liabilities is a source of funding and so represents a cash inflow:
Increases in accounts payable means a company purchased goods on credit, conserving its cash.
Any decrease in liabilities is a use of funding and so represents a cash outflow:
Decreases in accounts payable imply that a company has paid back what it owes to suppliers.
Accordingly, changes in other current assets can have positive cash flow impact (if they decrease from one period to the next) or a negative cash flow impact (if they increase from one period to the next) (Exhibit 7.12).
| Cash Inflow (+)/Outflow (—) | |
| Changes in Assets — Increase in assets means negative cash impact + Decrease in assets means positive cash impact | Changes in Liabilities + Increase in liabilities means positive cash impact — Decrease in liabilities means negative cash impact |
See Also
If the owner of a company withdraws cash from the business for personal use, how does this affect the accounting equation? State whether the assets, liabilities, and owner's equity increase, decrease, or stay the same. | Homework.Study.comWhat is an Owner Investment? - Definition | Meaning | ExampleElements of Accounting - AccountingverseAccounting Equation Quiz and Test | AccountingCoach