Sample Statement of Cash Flows Cash Flow from Operations Net profit after taxes

Question

Sample Statement of Cash Flows

Cash Flow from Operations

Net profit after taxes
+Depreciation
+Decrease in accounts receivable
+Decrease in inventories
+Increase in accounts payable
+Decrease in accruals
Cash provided by operations

Cash Flow from Investments

Increase in fixed assets
Change in business ownership
Cash provided by investment activities

Cash Flow from Financing

+Decrease in notes payable
+Increase in long-term debt
+Changes in stockholders’ equity
-Dividends paid
Cash provided by financing activities

Net increase/decrease in cash and marketable securities

The Statement of Cash Flows on page presents how changes in Balance Sheet accounts will affect a company’s cash balance. Refer to that information and discuss how an increase in your company's accounts payable from one period to the next is a means to maintain high cash balances in your company’s bank account. Do you believe there are any ethical considerations in slowing payments to your suppliers for the sake of increasing your company's bank balances?

Explanation / Answer

Accounts Payable and Cash Flow Management

To manage a cash flow in the organisation it is necessary to keep sharp eye on accounts payable. Whenever a purchase takes place without making immediate payment it increase accounts payable. Accounts payable are the amount which is payable to your supplier in the future point of time.

It is to be noted that average payable period is the best indicator of success of any organisation in the market. If you have making all the payments at the time of purchase it also means your credit worthiness is at risk

It is not necessary that increase in accounts payable means is due to unethical practice in business. Increase in accounts payable indicates that your credit worthiness is increasing and you are regular in the disbursement of accounts payable within the given credit period.

If your credit worthiness is not good you cannot increase accounts payable in the near future. Because no new supplier is going to sale you on credit. This will result the stable position of accounts payable.

Stable accounts payable also indicates that no significant growth rate company is experiencing.

So after analysing the accounts payable impact it is clear that increase in accounts payable is a good indicator. This is also ethical because your credit worthiness in the market is increasing regularly.

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