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← Series 79: Collection, Analysis & Evaluation of Data
Series 79 practice questionmediumFinancial Statement Analysis

Which of the following working capital changes would result in a source of cash on the cash flow statement?

  1. AAn increase in accounts receivable
  2. BA decrease in accounts payable
  3. CAn increase in inventory
  4. DAn increase in accounts payable✓ Correct answer
Explanation

Why D — An increase in accounts payable

An increase in accounts payable means the company is deferring payments to suppliers, which conserves cash and is therefore a source of cash. Increases in accounts receivable and inventory represent uses of cash because the company has tied up resources. A decrease in accounts payable is also a use of cash as the company is paying suppliers faster. Understanding working capital dynamics is critical for cash flow analysis in M&A transactions.

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