Changes in Other Current Assets

Recall that on the balance sheet, assets represent the company’s resources, while liabilities and shareholders’ equity represent funding for those resources.

Any increase in assets must be funded and so represents a cash outflow:

• Increases in accounts receivable imply that fewer people paid in cash.

• Increases in inventories imply that they were purchased.

Any decrease in assets is a source of funding and so represents a cash inflow:

• Decreases in accounts receivable imply that cash has been collected.

• Decreases in inventories imply that they were sold.

Accordingly, changes in other current assets can have positive cash flow impact (if they decrease from one period to the next) or a negative cash flow impact (if they increase from one period to the next).