In: Finance
Which one of the following is a use of cash?
increase in notes payable |
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increase in inventory |
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increase in long-term debt |
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decrease in accounts receivable |
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increase in common stock |
In the cash flow statement, a use of cash means a cash outflow from the organization. The options are explained below
Increase in notes payable – Notes payable is a source of funding for the organization and is shown under financing activities of the cash flow statement. So, this option is not correct
Increase in inventory means funds are being blocked in inventory and so this is a use of cash. So, this option is the correct option
Increase in long-term debt – Long term debt is a source of funding for the organization and is shown under financing activities of the cash flow statement. So, this option is not correct
Decrease in accounts receivable – A decrease in accounts receivable means that cash has been received from accounts receivable and so this is a source of funds. So, this option is also not correct
Increase in common stock – Common stock is a source of funding for the organization and is shown under financing activities of the cash flow statement. So, this option is not correct
So, as per above discussion, option B is the correct option