There is an inverse relationship between changes in assets and changes in cash flows. In other words, an increase in an asset account is a use ofcash, and a decrease in an asset account is a source ofcash. but what about Accounts receivables?? or cash collected from customers…?? its inflow…so how can that be use of cash…? didnt get this concept…plz help… Thanks in advance
dont understand your question bro. do you want to know how the net change in AR and the effect it has on the indirect method of the cash flow statement.
accounts receivable is an Asset. So its treatment would be same as for any asset --> Inverse on the Statement on Cashflows. Increase of AR is a decrease in Cash, Decrease of AR is an increase in Cash. The treatment of AR is the same, whether it is Direct or Indirect. So for Cash Collected from Customers in the Direct method Sales + Change in AR (+ve if AR decreased, -ve if AR Increased) + Change in Inv (+ve if Inv Decreased, -ve if Inv Increased) ========================================== Cash Collected from Customers =========================================== Hope this answers your questions.
thnx …gr8 help…