CASH FLOW STATEMENTS

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Could someone please explain why an increase in creditors increases cash and a decrease in creditors reduces cash. I can understand why a decrease in stock and debtors increases cash, and vice versa, but I just can't get my head around this!

Thanks

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:CASH FLOW STATEMENTS

    Creditors are people you owe money to. If you are not paying your creditors on time, it means that you amount you owe is increasing. So it also means that you must have more cash in the bank, because you are not paying it out.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:CASH FLOW STATEMENTS

    My explanation isn't perfect but I think about it this way, if I have reduced my creditors it means I've been paying out either to pay them off or I've been making cash purchases - so I've been using up my cash and have less cash left (decrease).
    If I've been increasing my creditors I've not been using up my cash because I've been putting things on account, so more cash available (increase).
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:CASH FLOW STATEMENTS

    Thanks for your replies that's much clearer now!

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