How do changes in prepaid expenses impact cash flow?
When the prepaid expense balance increases, that means the company has a cash outflow for expenses that have not yet been recognized in the income statement. For example, if the company prepays rent for 12 months, the prepaid rent balance will increase for the 12 months of rent prepaid. However, on the expense side, the 12 months of expenses will not be recognized until the end of the year. Overall, an increase in prepaid expenses results in a cash outflow while a decrease results in a cash inflow.
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How do changes in accounts receivable impact a company’s cash flow statement?
When a company’s accounts receivable balance increases, that results in a decrease to net cash flows. A decrease in accounts receivable results in an increase to net cash flows.
What is reported in the financing section of the cash flow statement?
The financing section includes activities related to debt or equity activities. This would include issuing common stock, issuing preferred stock, treasury stock, dividend payments, issuing bonds, issuing notes, and payment of principal of debt.