All of the following statements are true except for:
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A. B. C. D.Explanation
As accounts receivable balances increase, there is less income received as cash, therefore cash balances on the statement of cash flows will decrease.
Let's analyze each statement and determine whether it is true or false:
A. When inventory balances decrease, cash flows increase. This statement is generally true. When inventory balances decrease, it means that a company has sold some of its inventory. The sale generates revenue, which increases the cash inflows of the company. However, it's important to note that this statement assumes that the inventory was initially purchased on credit, so the decrease in inventory leads to a decrease in accounts payable, resulting in a net increase in cash flows.
B. When short-term debt increases, cash flows increase. This statement is false. When short-term debt increases, it means that the company has borrowed money or incurred a liability. Borrowing money or increasing liabilities does not increase cash flows but rather represents an increase in cash outflows or obligations to repay the debt in the future.
C. When accounts receivable balances increase, cash flows increase. This statement is generally true. When accounts receivable balances increase, it indicates that customers owe the company money for goods or services already provided. Although the company has not yet received the cash, the increase in accounts receivable represents an increase in future cash inflows once the customers make their payments.
D. When accounts payable balances increase, cash flows increase. This statement is false. When accounts payable balances increase, it means that the company has increased its outstanding liabilities to suppliers or vendors. It represents an increase in cash outflows that will be paid in the future when the company settles its accounts payable. Therefore, an increase in accounts payable does not result in an immediate increase in cash flows.
To summarize, the false statement among the given options is D. When accounts payable balances increase, cash flows increase.