Which event would likely create a cash inflow in a direct cash flow statement?

Which event would likely create a cash inflow in a direct cash flow statement?

• A. Sales growth with stable margins.
• B. Longer customer payment terms.
• C. Slower payment of trade creditors.
• D. Paying off existing bank debt.

Answer: (C)

The event that would likely create a cash inflow in a direct cash flow statement is sales growth with stable margins. When a company experiences sales growth, it typically indicates an increase in revenue. If the margins remain stable, the additional sales contribute positively to the cash flow since higher sales volume translates into more cash collected from customers. This increased inflow is essential for maintaining liquidity and funding operations or other investments. Other scenarios, such as longer customer payment terms and slower payment of trade creditors, do not generate immediate cash inflow. Longer customer payment terms extend the period before cash is received from sales, potentially creating a cash crunch. Similarly, slower payment to creditors would temporarily preserve cash but does not contribute to cash inflow; rather, it delays an outflow. Paying off existing bank debt results in a cash outflow since it involves using cash resources to settle liabilities. Therefore, sales growth with stable margins stands out as the most logical source of cash inflow in the given context.

The event that would likely create a cash inflow in a direct cash flow statement is sales growth with stable margins. When a company experiences sales growth, it typically indicates an increase in revenue. If the margins remain stable, the additional sales contribute positively to the cash flow since higher sales volume translates into more cash collected from customers. This increased inflow is essential for maintaining liquidity and funding operations or other investments.

Other scenarios, such as longer customer payment terms and slower payment of trade creditors, do not generate immediate cash inflow. Longer customer payment terms extend the period before cash is received from sales, potentially creating a cash crunch. Similarly, slower payment to creditors would temporarily preserve cash but does not contribute to cash inflow; rather, it delays an outflow. Paying off existing bank debt results in a cash outflow since it involves using cash resources to settle liabilities. Therefore, sales growth with stable margins stands out as the most logical source of cash inflow in the given context.