I do not understand in which cases there is an increase and decrease of trade re
ID: 2329763 • Letter: I
Question
I do not understand in which cases there is an increase and decrease of trade receivables, payables and inventories and when one needs to deduct or add it up. Thank you in advance! The statement of cash flows would be: Torbryan plc Statement of cash flows for the year ended 31 December 2015 Cash flows from operating activities Profit before taxation (after interest) (see Note 1 below Adjustments for: Depreciation (Note 2) Interest receivable (Note 3) Interest payable (Note 4) Increase in trade receivables (139 121) Decrease in trade payables (55 -54) Decrease in inventories (44 41) Cash generated from operations Interest paid Taxation paid (Note 5) Dividend paid Net cash from operating activities Cash flows from investing activities Payments to acquire tangible non-current assets Interest received (Note 3) Net cash used in investing activities Cash flows from financing activities Repayments of loan notes Issue of ordinary shares (Note 6) Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 January 2015 (Note 7) Cash and cash equivalents at 31 December 2015 79 (17) (18) 262 (23) (39) 150 17 (150)Explanation / Answer
Solution:
1. In case of increase in current assets like trade receivable, inventories etc, increased amount is deducted in statement of cash flow presuming that we have purchased these assets and purchase of assets requires cash outflows.
2. In case of decrease in current assets like trade receivable, inventories etc, decreased amount is added in statement of cash flow presuming that we have sold these assets and sales of assets results in cash Inflows.
3. In case of Increase in current liabilities like trade payables, Expenses payables etc, Increased amount is added in statement of cash flow presuming that we have borrowed money and borrowing results in increase in cash.
4. In case of decrease in current liabilities like trade payables, Expenses payables etc, decreased amount is deducted in statement of cash flow presuming that we have made payment of our liabilities. and repayment results in decrease in cash flow.
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