After the next year, the account balances change as follow: Long-term debt: DECREASED by $2,000 Accounts payable: DECREASED by $2,000 Long-t

After the next year, the account balances change as follow: Long-term debt: DECREASED by $2,000 Accounts payable: DECREASED by $2,000 Long-term assets: DECREASED by $1,000 Accounts receivable: DECREASED by $2,000 Inventory: DECREASED by $3,000 Based on these changes, what impact did they have on your company’s OPERATING CASH FLOW?

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  1. Answer:

    Long-term debt: DECREASED by $2,000

    ⇒ DOESN’T AFFECT OPERATING CASH FLOW SINCE IT IS A FINANCIAL ACTIVITY (DECREASES CASH FLOW FORM FINANCIAL ACTIVITIES)

    Accounts payable: DECREASED by $2,000

    ⇒ DECREASES OPERATING CASH FLOW

    Long-term assets: DECREASED by $1,000

    ⇒ DOESN’T AFFECT OPERATING CASH FLOW SINCE IT IS AN INVESTING ACTIVITY (INCREASES CASH FLOW FORM INVESTING ACTIVITIES)

    Accounts receivable: DECREASED by $2,000

    ⇒ INCREASES OPERATING CASH FLOW

    Inventory: DECREASED by $3,000

    ⇒ INCREASES OPERATING CASH FLOW

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