- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 4. Analyzing Statements of Cash Flows I
- Subject 2. Classification of Cash Flows and Non-Cash Activities
CFA Practice Question
Uses of cash do not include ______.
B. increases in accounts receivable
C. increases in prepayments
D. increases in taxes payable
E. investments in inventory
A. dividend payments
B. increases in accounts receivable
C. increases in prepayments
D. increases in taxes payable
E. investments in inventory
Correct Answer: D
User Contributed Comments 21
| User | Comment |
|---|---|
| syip | Why? Should taxes be treated in operating activites? |
| bikegeek | taxes payable haven't been paid yet, therefore they require no outflow of cash |
| muneeb70 | this was soooo simple but a lil' tricky. as bikegeek said, the other activities require cash flows, and only this one does not. |
| labine | An increase in accounts receivable does not represent an actual outflow of cash either. Rather, it is less cash inflow. |
| magicchip | payable vs. paid |
| ilgibe | use vs. collection of cash |
| ledyba | why is B a use of cash? |
| Oarona | Accounts receivable are assets. As such,an increase in assets reduces cash. |
| uformula | Oarona, going by that same though, increase in taxes payable increases liabilities and there fore should add cash for the time being. |
| bundy | Uses payable Receivable is not a use it is a collection |
| Jurrens | "Uses" meaning what "lessens" cash... a payable would give you MORE cash because you didn't have to spend it, you got an IOU instead. Where as the receivable means you did not receive the cash, which technically lessens your cash amount. |
| justbassbaby | Why B is incorrect? AR increases means credit sales, how is it involving the use of cash? |
| jayj001 | AR increase => less collection for the period Therefore the adjustment to net income is a deduction i.e. use of cash |
| bsm9 | The ar is poorly worded and confusing. |
| gill15 | Just think of it this way. A use of cash is anything that decreases CFO, CFI or CFF. First one is obvious. Pay divs and CFF decreases. Now how do you reduce CFO? By Increasing A/R we decrease Cash RECEIVED by customers(therefor a USE). If we increase prepayments we increase Cash PAID for expenses(Use). If we increase Tax's payable, we decrease cash PAID for interest(Therefor cant be a use) |
| johntan1979 | In simple terms, how in the world does reducing the cash collected from customers a USE of cash? |
| johntan1979 | Increase of a/r means less cash received, but that surely DOES NOT mean you USED that cash (that was not collected). |
| assiduous | This is a tricky question, and answer choice B could probably be argued either way. I could see less than 70% of candidates answering this correctly, at which point the CFA institute probably would not include this question in the test results. |
| ascruggs92 | This is tricky but my reasoning for D. over B. would be the wording of the question. Paying taxes is a "use" of cash, so an increase in taxes payable would be a lack of use. Neither an increase nor decrease in A/R is truly a "use" of cash, it is a receipt of cash or lack thereof |
| chesschh | gill15 has the correct view of it. |
| choas69 | everything reduces net cash except for D which increases net cash |