Question

In: Finance

Indicate whether each of the following items increases or decreases cash flow. Decrease in accrued expenses...

Indicate whether each of the following items increases or decreases cash flow.

Decrease in accrued expenses

Dividend payment

Decrease in inventory

Increase in prepaid expenses

Increase in accounts payable

Decrease in investments

Depreciation expense

Decrease in notes payable

Decrease in accounts receivable

Increase in notes receivable

Increase in bonds payable

Increase in Plant and equipment (gross)

Increase in common stock

Increase in preferred stock

Decrease in income tax payable

Solutions

Expert Solution

In determining the cash flows, the rule is:

Increase in assets will decrease the cash flows and decrease in assets will increase the cash flows, AND

Increase in liabilities will increase the cash flows and decrease in liabilities will decrease the cash flows.

Based upon the above rule, the effects of transactions are below:

Dividend payment : It decreases the cash flow

Decrease in inventory : It increases the cash flow

Increase in prepaid expenses: It decreases the cash flow

Increase in accounts payable: It increases the cash flow

Decrease in investments : It increases the cash flow

Depreciation expense: Though depreciation is a non cash item but if we calculate the cash from operating activities by indirect method, then it increases the cash flows.

Decrease in notes payable: It decreases the cash flows

Decrease in accounts receivable : It increases the cash flows

Increase in notes receivable: It decreases the cash flows.

Increase in bonds payable: It increases the cash flows

Increase in plant & equipment: It decreases the cash flows

Increase in common stock : It increases the cash flows

Increase in preferred stock: It increases the cash flows

Decrease in income tax payable: It decreases the cash flows.

jeff jeffy answered 2 months ago
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