The impact of changes in accounts receivable on a company's cash flow statement can be explained as follows...
1. In case of increase in Accounts Receivable...
it means that customers owe the company more money for goods or services provided on credit.
This increase in accounts receivable leads to a decrease in net cash flows in the cash flow statement: this is because the company has made sales and recognized revenue but has not yet received the cash from customers.
For example, let's say a company sells $10,000 worth of products to customers on credit - reporting this as revenue in the income statement. As a result of the sale, accounts receivable in the balance sheet increases by $10,000. However, since the company has not received the cash yet, the net cash flow decreases by $10,000 in the cash flow statement, because you need to subtract that amount from the net profit.
2. Decrease in Accounts Receivable:
Conversely, when a company's accounts receivable balance decreases, it means that the company has collected cash from customers, resulting in an increase in net cash flows in the cash flow statement.
For instance, let's consider a scenario where a company had $20,000 in accounts receivable at the beginning of the period. During the period, the company collected $15,000 from customers, reducing the accounts receivable balance to $5,000. As a result, the net cash flow increases by $15,000 in the cash flow statement since cash has been received from customers.
So... we have seen how an increase in accounts receivable reduces net cash flows, indicating that cash has not been received for sales made on credit.
On the other hand, a decrease in accounts receivable increases net cash flows, reflecting the collection of cash from customers and reducing the outstanding receivables balance.
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