We included the following piece in a Finance Essentials Article. However, we feel we should continually highlight this concept, given its ubiquity. When we hear a use of cash, it is simply telling us a decrease in the amount of our cash; while a source of cash is an increase in the amount of our cash. Use the following as a rule of thumb:
1. Increase in assets is a use of cash (i.e. purchasing more inventories) 2. Increase in liabilities is a source of cash (i.e. purchasing more long-term debt for cash) 3. Increase in equity is a source of cash (i.e. selling common stock for cash) 4. Decrease in assets is a source of cash (i.e. decrease in accounts receivable and receiving cash) 5. Decrease in liabilities is a use of cash (i.e. paying back the principle of a corporate bond) 6. Decrease in equity is a use of cash (i.e. repurchasing treasury stock for cash)
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