Consider the above statement of cash flows. Which of the following is true of AOS Industries' operating cash flows? A. It sold more inventory than it bought. B. It collected more cash from its customers than they charged. C. It charged more on its accounts payable back than it paid back. D. All of the above are true.

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Business

Jocelyn

20 September, 11:13

Consider the above statement of cash flows. Which of the following is true of AOS Industries' operating cash flows? A. It sold more inventory than it bought. B. It collected more cash from its customers than they charged. C. It charged more on its accounts payable back than it paid back. D. All of the above are true.

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Pennington · Answer 1

D. All of the above are true.

Explanation:

Statement of cash flow shows cash receipt and paid by an entity during a particular period. The statement of cash flow is divided into three activity section: operating, financing and investing.

Under the operating activities, cash inflow and outflow relating to the ordinary business activities of the firm are shown. Examples of such activities are cash receipt from customers, cash paid to suppliers, e. t. c.

Investing activities deal with activities relating to acquisition and disposal of entity's investment. Examples include cash receipt from sales of entity's property, plant and equipment, cash paid to purchase marketable securities.

Financing activities entails activities that involves activities relating to the entity's provider of funds. Example includes cash generated from issuance of shares and cash paid to settle long-term debt.

In the case of AOS industries, option A to C involve operating cash flow. So all of the above are true.

Option A signifies reduction in entity's opening inventory because it sold more inventory than it bought, which also means an inflow of cash. And inventory belongs to the ordinary activity of the firm, so option A is an operating cash flow.

Option B also signifies that there is a reduction in opening account receivable of the firm because it collected more cash than they charged. In that regard, option B is an operating cash flow because it relates to customers in the ordinary business of the entity.

Option C shows that the entity's opening account payable has increased and this activity relates to entity's suppliers in the ordinary business of the entity, so it is an operating cash flow.

On this background, option D-all of the above are true - is correct.