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23 September, 09:39

Classify the following changes in each of the accounts as either an outflow or an inflow of cash. During the year (a) marketable securities increased, (b) land and buildings decreased, (c) accounts payable increased, (d) vehicles decreased, (e) accounts receivable increased, and (f) dividends were paid.

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  1. 23 September, 12:23
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    (a) marketable securities increased - outflow of cash

    (b) land and buildings decrease - Inflow of cash

    (c) accounts payable increased - Inflow of cash

    (d) vehicles decreased - Inflow of cash

    (e) accounts receivable increased - Outflow of cash

    (f) dividends were paid - Outflow of cash

    Explanation:

    Marketable securities are an asset in the entity's financial statements. An increase in an asset in simple terms can be likened to the use of cash in the purchase of an asset. As such, an increase in market securities is an outflow of cash.

    Land and buildings decreased - A decrease in land and building is a decrease in asset which can be likened to a disposal of the asset for cash hence this is an inflow of cash.

    Accounts payable increased - This is an increase in liability which can easily be likened to the receipt of cash from a loan. Hence this is an inflow.

    Vehicles decreased - A decrease in Vehicles is a decrease in asset which can be likened to a disposal of the asset for cash hence this is an inflow of cash.

    Accounts receivable increased - This is an increase in an asset other than cash. In simple terms, it can be explained as the exchange of cash for another asset. As such this is an outflow.

    Dividends were paid - clearly an outflow of cash.
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