Sources and Uses of Cash Paper Example

Accounts receivables (A/R) are both sources and uses of funds. Typically, an increase in a company's A/R appears as a current asset. If A/R decreases, it increases a company's working capital. When a company's A/R increases, it is an expenditure in the cash flow statement, as it lengthens the duration in which the company expects to collect its debt (Mulford, & Comiskey, 2005). Any company hoping to improve its cash flow statement ought to review its policy pertaining too several vital elements. One, it needs to review A/R tracking procedures to avoid the aging of account receivables. Two, set up an adequate system for the sending of accurate and timely invoices to its customers. Three, offer incentives and enticements to its customers for the prompt payment of their debts through discounts or gifts (Robinson & Sensoy, 2016). Four, send periodic reminders to its customers before accounts due date. Finally, provide clients with an option to clear their debts using installments backed by a number of customer-friendly payment options.

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Several outcomes can occur whenever a company lengthens the amount of time it takes to pay its suppliers. To begin with, it reduces the ability of suppliers to sustain their production activities. Second, a company benefits from excess cash on hand which it can use to finance short term business activities. Third, lengthy payment periods result in suppliers refusing to extend credit. Four, taking too long to pay its debts indicates a company's inability to pay its creditors (Mulford, & Comiskey, 2005). As a result, when this occurs, companies experience slower cash conversion cycles which negatively affect their cash flow statements. Besides that, it can affect a company's ability to attract investors, as investors look for companies with high cash flows (Robinson & Sensoy, 2016).

Conclusion

A biblical principle for use in this example is Proverbs 23:23, which urges businesses and individuals to act with truthfulness in all things (Proverbs 23:23 New International Version). Therefore, this verse can help companies keep accurate records necessary for the creation of appropriate budgets.

References

Robinson, D. T., & Sensoy, B. A. (2016). Cyclicality, performance measurement, and cash flow liquidity in private equity. Journal of Financial Economics, 122(3), 521-543. https://doi.org/10.1016/j.jfineco.2016.09.008

Mulford, C. W., & Comiskey, E. E. (2005). Creative cash flow reporting: Uncovering sustainable financial performance. Hoboken, NJ: John Wiley & Sons. https://books.google.co.ke/books?hl=en&lr=&id=oGgAM42ykAMC&oi=fnd&pg=PR7&dq=Creative+Cash+Flow+Reporting&ots=D1c9fl9J6w&sig=2dugxXuJaLnKfjDyjXKuxCq0EnA&redir_esc=y#v=onepage&q=Creative%20Cash%20Flow%20Reporting&f=false

Westerfield W. W. & Jordan B. D. (2012) Fundamentals of corporate finance (11th ed.). New York, NY: McGraw Hill Education.