When using the direct method to determine the cashflows from operations, a decrease in accounts receivable is an increase in cash.
When there is a decrease in accounts receivable:
- It means that the accounts receivable has paid some of their debt
- It increases cash as a result of the payment of debt
Using the direct method, one will show that a decrease in accounts receivable leads to an increase in cash because the receivable would be reduced by a cash inflow.
In conclusion, a decrease in accounts receivable is an increase in cash.
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