T/F when the current assets of a company such as accounts receivable or inventory increase during the year, the increase provides additional cash inflow from operating activities
False. The increase in current assets such as accounts receivable or inventory does not necessarily provide additional cash inflow from operating activities. It is important to understand that there is a difference between accounting methods and cash flow.
When current assets increase, it means that the company has invested more resources into these assets, which could be due to various reasons such as increased sales or production. However, while these assets have value on the company's balance sheet, they may not directly result in additional cash inflow.
To determine the cash inflow from operating activities, you need to analyze the company's cash flow statement. The cash flow statement provides information about the cash generated or used by the company's operating, investing, and financing activities.
The increase in accounts receivable indicates that the company has made sales on credit and has not yet received cash for those sales. This increase in accounts receivable is typically a result of providing goods or services to customers on credit terms. While it represents an increase in asset value, it does not result in immediate cash inflow until the customers make their payments.
Similarly, an increase in inventory represents an increase in the value of goods held by the company. Although this increase may be necessary to support business operations, it does not directly result in cash inflow until the inventory is sold.
To summarize, an increase in current assets such as accounts receivable or inventory during the year does not provide additional cash inflow from operating activities. The cash inflow is determined through analyzing the cash flow statement, which provides a more accurate representation of a company's cash generation and usage.