When a company increases trade payables from one year to the next, what is the effect on cash ﬂows?
A) A decrease in cash caused by paying down our debt to vendors.
B) An increase in cash because we have not paid cash for all the inventory and services purchased on credit during the period.
C) A decrease to cash because we will have to pay these liabilities in the future.
D) An increase to cash because we have received cash from vendors.

Question

Quizplus · Accepted Answer

An increase in trade payables means the company has delayed paying its vendors, thus retaining more cash within the business during the period. This is because it has purchased inventory or services on credit without yet paying for them in cash, effectively increasing its cash flow.

When a Company Increases Trade Payables from One Year to the Next