CFA Practice Question

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CFA Practice Question

Uses of cash do not include ______.

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
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