Crash Course in Accounting and Financial Statement Analysis, Second Edition

Changes in Other Current Liabilities

Any increase in liabilities is a source of funding and so represents a cash inflow:

• Increases in accounts payable means a company purchased goods on credit, conserving its cash.

• Any decrease in liabilities is a use of funding and so represents a cash outflow:

  Decreases in accounts payable imply that a company has paid back what it owes to suppliers.

Accordingly, changes in other current assets can have positive cash flow impact (if they decrease from one period to the next) or a negative cash flow impact (if they increase from one period to the next) (Exhibit 7.12).

Exhibit 7.12. It is Important to Understand How Changes in Assets and Liabilities Impact the Cash Flow Statement

Cash Inflow (+)/Outflow (—)
Changes in Assets — Increase in assets means negative cash impact + Decrease in assets means positive cash impact	Changes in Liabilities + Increase in liabilities means positive cash impact — Decrease in liabilities means negative cash impact