Answer to Question #12151 in Management for John

Question

Which of the following statements is CORRECT?
Answer In the statement of cash flows, a decrease in accounts receivable is reported as a use of cash.
Dividends do not show up in the statement of cash flows because dividends are considered to be a financing activity, not an operating activity.
In the statement of cash flows, a decrease in accounts payable is reported as a use of cash.
In the statement of cash flows, depreciation charges are reported as a use of cash.
In the statement of cash flows, a decrease in inventories is reported as a use
of cash.

Answer 1

The correct answer is “D”: because depreciation reduces net income of an enterprise (in other words, it is a use of cash);
Answer “A” is wrong: because decrease in receivables means that our borrowers start paying off their debts, so the company increases its cash pool.
Answer “B” is wrong: because cash-flow statement encapsulates financing activities as well as operations and investment activities. That is why dividends DO show up under “financing activities” section;
Answer “E” is wrong: because decrease in inventories means that they were sold, thus creating a cash inflow, not cash outflow.