Question

I have a question about cash flows. If the cash generated from not paying accounts payable...

I have a question about cash flows.
If the cash generated from not paying accounts payable is considered excessive, not normal or not sustainable(i.e.
the company must pay accounts payable eventually and the current year adjustment is far in excess of what could
be considered as normal), you will need to "adjust" operating cash flow to remove the excess amount related to payable
accounts.

How can adjust oerating cash flow? Is there any calculation that I have to do?
Please help me.
Thank you!

Homework Answers

Answer #1

The condition mentioned above says that if there's an adjustment related to accounts payable which are in excess. In other words, the accounts payable got increased by credit purchases by excessive amounts that resulted in excessive positive operating cash flow.

In such cases, you would be required to calculate the excess increase in accounts payable and reduce the same from operating cash flow. This has to be analyzed on the basis of past data and performance.

I hope it helps :)

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