Is accounts receivable or accounts payable an operating activity? no money has been paid yet.

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Expert Solution

A change in current assets (accounts receivables) and current liabilities (accounts payables) affect the cash.

The non cash items are calculated in income statement and balance sheet so the folloiwng adjustments are made:

Add: Decrease in current assets (A/R) & Increase in current liabilities.

Less: Increase in current assets (A/R) & Decrease in current liabilities.

The first adjustment presents the inflow of cash and the second presents the outflow of cash.

because when the current assets decrease it means we have received the cash in current year and in the case of liability when it decrease it refers the outflow of cash. On the other hand when the assets increase it means our cashflow is outside and liabilities increase means cash inflow.

In Operating activities the non cash and non operating transactions are also made, just as depreciation (depreciation is not a cash expense but it is related to our business.)

The transactions (CA or CL) in which cash has not received or paid but if they are related to cash or affect the cash that are operating activities.

ekkarill92 answered 8 months ago

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