29 October 2009
In CFS, we figure out the changes in working capital during the year. for eg. where the Debtors have increased, we show it as a (less) item.but i'm confused as to why to show it as (less) because in this case cash is neither coming in nor going out of the business, where in reality 'Goods' are being sold.
30 October 2009
Whenever debtors increase, it means that more cash is invested in the business, so indirectly it is an outflow of cash. And so, it is shown as a (less) item in CFS. Debtors increase when goods are sold to them. How do you get these goods ? By investing i.e. manufacturing these goods. There is an outflow of cash. Hope, it is clear to you. CA Rahul Vora
CAclubindia
