Chapter 2: Q20BP (page 52)

Identify whether each of the following items increases or decreases cash flow:
Increase in accounts receivable
Decrease in prepaid expenses
Increase in notes payable
Increase in inventory
Depreciation expense
Dividend payment
Increase in investment
Increase in accrued expenses
Decrease in account payable

Short Answer

Expert verified

An increase in account receivable, decrease in prepaid expense, and increase in accrued expense cause an increase in the cash flow. Whereas an increase in notes payable, decrease in account payable, increase in investment, increase in inventory, and dividend payment causes the decrease in cash flow. In addition, depreciation expense is a non-cash transaction.

Step by step solution

Cash flow statement

A cash flow statement is defined as the statement prepared to show the cash inflow and outflow of the company.It represents the reconciliation of the opening and closing balance of the cash account.

Classification of the transaction as increase or decrease in the cash flows

Transaction	Classification
Increase in accounts receivable	Increase in cash flow
Increase in notes payable	Decrease in cash flow
Depreciation expense	Non-cash transaction
Increase in investment	Decrease in cash flow
Decrease in account payable	Decrease in cash flow
Decrease in prepaid expense	Increase in cash flow
Increase in inventory	Decrease in cash flow
Dividend payment	Decrease in cash flow
Increase in accrued expenses	Increase in cash flow

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Accumulated depreciation	\(309,000
Retained earnings	187,000
Cash	14,000
Bonds payable	136,000
Accounts receivable	54,000
Plant and equipment – original cost	775,000
Accounts payable	35,000
Allowance for bad debts	9,000
Common stock, \)1 par, 100,000 share outstanding	100,000
Inventory	70,000
Preferred stock, $59 par, 1,000 share outstanding	59,000
Marketable securities	24,000
Investments	20,000
Notes payable	34,000
Capital paid in excess of par (common stock)	88,000

Stud Clothier
Balance sheet 20X1
Assets		Liabilities and Equity
Cash	\)60,000	Account payable	\(220,000
Account receivable	240,000	Accrued taxes	30,000
Inventory	350,000	Bonds payable (long term)	150,000
Plant and equipment	410,000	Common stock	80,000
		Paid in capital	200,000
		Retained earnings	380,000
Total assets	\)1,060,000	Total LIbilities and Equity	$1,060,000

Short Answer

Step by step solution

Cash flow statement

Classification of the transaction as increase or decrease in the cash flows

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Increase in accounts receivable	Decrease in prepaid expenses
Increase in notes payable	Increase in inventory
Depreciation expense	Dividend payment
Increase in investment	Increase in accrued expenses
Decrease in account payable

Identify whether each of the following items increases or decreases cash flow:Increase in accounts receivableDecrease in prepaid expensesIncrease in notes payableIncrease in inventoryDepreciation expenseDividend paymentIncrease in investmentIncrease in accrued expensesDecrease in account payable

Short Answer

Step by step solution

Cash flow statement

Classification of the transaction as increase or decrease in the cash flows

One App. One Place for Learning.

Most popular questions from this chapter

Recommended explanations on Business Studies Textbooks

Managerial Economics

Nature of Business

Operational Management

Change Management

Influences On Business

Strategic Analysis

Study anywhere. Anytime. Across all devices.