During the last year of operations, Theta’s accounts receivable increased by $18,000, accounts payable increased by $9,000, and inventories decreased by $3,600. What is the total impact of these changes on the difference between profits and cash flow?

During the last year of operations, Theta’s accounts receivable increased by $18,000, accounts payable increased by $9,000, and inventories decreased by $3,600. What is the total impact of these changes on the difference between profits and cash flow?
 
Explanation

An increase in accounts receivable reduces cash flow by $18,000. An increase in accounts payable increases cash flow by $9,000. A decrease in inventory increases cash flow by $3,600. The total impact is a reduction in cash flow by $5,400.



Candy Canes Inc. spends $244,000 to buy sugar and peppermint in April. It produces its candy and sells it to distributors in May for $310,000, but it does not receive payment until June. For each month, find the firm’s sales, net income, and net cash flow, and fill in the following table.



Explanation

Candy Canes Inc.
	April			May		June
Sales	$	0		$	310,000	$	0
Cash flow*		(244,000	)		0		310,000
Net income**		0			66,000		0

*Cash flow = Sales − COGS − ΔA/R − ΔInventory
**Net income = Sales − COGS