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How to Calculate Cash Inflow Using Accounts Receivable Inventory and Accounts Payable

Original post by Kathy Adams McIntosh of Demand Media

The statement of cash flows reports the cash inflows and cash outflows from all activities occurring during the period. The statement of cash flows separates all cash flows into three categories. These include operating activities, investing activities and financing activities. Current asset and current liability accounts refer to accounts that will use cash or be converted to cash within a year. Changes in current asset accounts or current liability accounts impact operating cash flows. Accounts receivable and inventory represent current asset accounts. Accounts payable represent a current liability. Changes in these accounts appear in the operating activities section of the statement of cash flows.

Step 1

Retrieve the accounts receivable balance from the current year balance sheet. Retrieve the accounts receivable balance from the previous year balance sheet.

Step 2

Subtract the current year accounts receivable balance from the previous year balance. This calculates the decrease in accounts receivable, or the additional money collected during the year. This equals the cash inflow from the change in accounts receivable.

Step 3

Retrieve the inventory balance from the current year balance sheet. Retrieve the inventory balance from the previous year balance sheet.

Step 4

Subtract the current year inventory balance from the previous year balance. This calculates the decrease in inventory, or the additional money received from selling inventory during the year. This equals the cash inflow from the change in inventory.

Step 5

Retrieve the accounts payable balance from the current year balance sheet. Retrieve the accounts payable balance from the previous year balance sheet.

Step 6

Subtract the previous year accounts payable balance from the current year balance. This calculates the increase in accounts payable, or the additional money owed at the end of the year. This equals the cash inflow from the change in accounts payable.

                   

Tips & Warnings

  • Cash inflows only represent one part of cash management. The combination of cash inflows and outflows determine the total increase or decrease in the company's cash balance.
  • Changes in accounts receivable, inventory or accounts payable can also result in cash outflows. This occurs when accounts receivable or inventory increases or when accounts payable decreases from one year to the next.

References

About the Author

Kathy Adams McIntosh started writing professionally in 2001. She has been published in "Cup of Comfort," "Community Connection" and "Wisconsin Christian News." Adams McIntosh belongs to the Fearless Freelancers and the Broadway Writers Guild. She earned her Master of Business Administration from the University of Wisconsin.

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