Question

The text definition of working capital is Curr Assets-Curr Liabilities=Working Capital. But can't stretching AP become a positive cash flow? Explain how AP can become a positive cash flow.

Answer 1

Stretching of Account Payable will be positive for company because it will lead to lagging of the payment because lagging of payment will mean that the company will be having adequate amount of the cash flows because it has deferred its payment on a later date, so because of the time gain, there would be again in the overall working capital of the company because working capital of a company is calculated after deduction of total liabilities from total Assets, and total liabilities will be including the Account payable so account payable is lagged, that will mean that the total liability of the company will be reduced and it will be leading into a higher working capital for the company.

So it can be said that account payable can become a positive cash flow when there is a lagging of the payment of these accounts payable.