Navigate to the threaded discussion and respond to the following prompts: Source

Question

Navigate to the threaded discussion and respond to the following prompts:

Sources and Uses of Cash: Is an increase in Accounts Receivable a source or a use of cash? Why? What policies could we change to affect our Accounts Receivable balance?

Statement of Cash Flows: Suppose a company lengthens the time it takes to pay suppliers. How would this change affect the statement of cash flows? How sustainable is the change in cash flows from this practice?

Support your position with at least one biblical principle with a specific Bible verse that you feel is relevant to the situation (explain how and why it applies).

Explanation / Answer

1. Increase in accounts receivable is a use of cash. Accounts receivable is the amount which is pending to be received by the company. Increase in accounts receivable means increase in pending amount which means that cash inflow is not happending.

Following changes in policy may help:

(a) Company can change credit terms to affect accounts receivable balance. Decrease in credit period will reduce the pending amount and hence will increase cash inflow.

(b) Discount on payment within a specified period may also help in faster realisation of receivables.

2. Increase in payment time to suppliers will have a positive impact on cash flow. Payment to suppliers decreases cash. If this credit time is extended, cash will outflow at a later date and hence more cash would be available.

However, this change is sustainable for a short period because creditors are short term liabilies and required to be paid within one year. Increase in credit period (for example from 1 month to 2 months) will temporarily defer the cash outflow.

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