Of the following changes in working capital line items, which represents an actual cash outflow?

• A. Increase in accounts receivable (A/R)
• B. Increase in accounts payable
• C. Decrease in inventory
• D. Decrease in accrued expenses

Answer: (A)

When you look at cash flow, timing matters: cash leaves or stays with you based on when you collect receivables, pay suppliers, or convert inventory to cash. An increase in accounts receivable means you’ve delivered goods or services on credit but haven’t collected the cash yet, so cash on hand is reduced this period. In the cash flow adjustment, this is a use of cash, i.e., an actual cash outflow for the period.

The other changes tend to have opposite or different effects on cash: more accounts payable means you’ve delayed payments to suppliers (a cash source), a decrease in inventory suggests inventory was sold for cash (a cash source), and a decrease in accrued expenses means cash was paid to settle those obligations (a cash outflow). Among these options, the straightforward cash-outflow example highlighted is the increase in accounts receivable because it directly ties to cash not yet received.