Question

Which of the following changes in working capital will result in a decrease in cash flows?...

Which of the following changes in working capital will result in a decrease in cash flows?

____

Increase in inventories

Decrease in accounts receivable

Decrease in accounts payable

Decrease in other current liabilities

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Answer #1

A decrease in current assets ( for example Accounts Receivable) causes an increase in cash flows as cash is received from current assets (for example accounts receivable ). Similarly, An increase in Current Liabilities causes an increase in cash flows as cash is saved as liabilities are not paid

On the other hand, An increase in current assets ( for example Accounts Receivable) causes a decrease in cash flows as cash is blocked from investment in current assets (for example accounts receivable ). Similarly, A decrease in Current Liabilities causes a decrease in cash flows as cash is paid

So, as per above discussion, option A, C and D result in a decrease in cash flows and option B results in an increase in cash flows

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