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Could you please briefly explain when to put a bracket round the increase/decrease of the 3 working capitals in a cashflow statement, i always get it mixed up. Thanks
I know you deduct acquisition and add disposal.
I don’t believe this! I’ve just answered this question not 30 minutes ago and now it’s gone! Is this the second time that you have posted the question?
Anyway, here we go again!
Imagine that you have some cash and a friend comes along and says “Grrr, Tigress, please lend me some money”
You agree. What happens to your cash balance as you hand over $100?
And what happens to your receivables balance?So, an increase in receivables is a decrease in cash. Ok so far?
You buy some goods to sell them later. What happens to your inventory balance? And what has happened to your cash? So an increase in receivables is a decrease in cash. Again, ok so far?
You had 5,000 items in inventory on 1 January, 2014. On 31 December, 2014 you had 8,000 items in inventory. And you haven’t sold ANY during the year! What must have happened? You must have bought 3,000 items during the year. When you bought that inventory, what happened to your cash?
So an increase in inventory is a decrease in cash
And in the statement of cash flow, a decrease in cash is shown in brackets and an increase in cash flow is shown without the brackets
Is that any clearer?
Remember, think to cash! “In order for this to have happened, what must have happened to my cash?” is the recurrent question that you should be asking throughout the exercise
Better?
yes I noticed the 1st post mysteriously disappeared, before I could read ur reply
This helps! Thank you.
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