Question

Which one of the following is a source of cash? 

 Increase in accounts receivable 

 Decrease in common stock 

 Increase in Swed assets 

 Decrease in accounts payable 

 Decrease in inventory

Answer 1

Decrease in Inventory is a source of cash

Explanation :-

Sources of cash are those things that yield cash and uses of cash are those items that drain the cash balance of a firm.
Assets are typically a source of cash as they can be sold to gain cash and liabilities are uses of cash as they turn into an expense in the coming times either in the form of paying accrued expenses or long-term liabilities.
From the above given options :

Option 1:- Increase in accounts receivable - Cash decreases when assets other than cash increase, when a company repurchases equity, or when liabilities decline. Accounts Receivable is a current assets. Since A/R is money that the firm is owed by customers - the firm has not yet gained the cash that it has already earned and therefore that decreases what its cash balance should be.

Option 1:- Decrease in common stock - If a company repurchases its shares that will lower the cash balance. Dividends paid out can also result in a decline of cash.

Option 3:- Increase in Fixed assets - Cash decreases when assets other than cash increase, when a company repurchases equity, or when liabilities decline. Hence, increase in fixed assets means the co. has purchased plant, machinery or equipment resultin in the cash outflow & decreasing its cash balance.

Option 4:- Decrease in accounts payable - If a company's liabilities are falling, that means the co. is paying off its deferred expenses such as accounts payable which will lower its cash balance.

Option 5:- Decrease in Inventory -  On the balance sheet - a co. increases its cash balance when it sells assets, issues equity, issues new debt, or takes on other liabilities.
An increase in a company's inventory indicates that the company has purchased more goods than it has sold. Since the purchase of additional inventory requires the use of cash, it means there was an additional outflow of cash. An outflow of cash has a negative or unfavorable effect on the company's cash balance. Negative effects are reported as negative amounts on the Cash Flow Statement of the co. However, a decrease in inventory would be reported as a positive amount, since reducing inventory has a positive effect on the company's cash balance. Thus, decrease in inventory means company has sold its stock of goods resulting in cash inflow.