burnsy562000

mgf3306 Wrote:
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> you are talking about two different things here.
> It is cash paid to supplies not cash inflow to the
> firm. that is why you subtract an increase in AP.


Why would you subtract an increase in AP from CFO?...You wouldn't. There was no cash outflow or inflow in that case, therefore it would not affect the CF of the firm. All that would happen is an offsetting increase in an asset.

homie

I am relatively new to AF, compared to all of you! I have a very good background for Finance.
I believe this doubt is not yet solved for you!
The last min studies will surely confuse us on concepts even we were thorough on them before.

Here is the answer to CFO calculation wrt AP Payments
Strictly, any payment is an outflow of cash.
Payment for firm 's Operations are outflow of cash.
There is no exception to it for AP Payments.
Ofcourse, it reduces liability of the firm. Hence, reduce cash and liability in the B/s.
Show outflow , means -ve in CF statement. Categorize it to "Operations" because it is payment during normal (regular)course of business.

The supplier firm's CF statment will show "INFLOW for cash " as received from Customer.
So it is not an inflow to the "Paying Firm" . OK?

rkapoor

You have the incorrect formula. For cash paid to supplies you subtract an increase in AP because that represents cash that you did not pay but is still due. Your logic is correct.