The statement of cash flows for Baldwin Company shows what happens in the Cash a
ID: 2793807 • Letter: T
Question
The statement of cash flows for Baldwin Company shows what happens in the Cash account during the year. It can be seen as a summary of the sources and uses of cash (sources of cash are added, uses of cash are subtracted). Please answer which of the following is true if Baldwin’s accounts payable goes down:
It is a use of cash, and will be shown in the financing section as a subtraction. It is a use of cash, and will be shown in the operating section as a subtraction. It is a source of cash, and will be shown in the operating section as an addition. It is a source of cash and will be shown in the financing section as an addition.Explanation / Answer
Accounts payable is related to operating activities of the firm. All activities that are directly and indirectly connected to sale and purchase are operating activities. These are all reported in operating section.
Hence, correct option is It is a use of cash, and will be shown in the operating section as a subtraction.
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