Which of the following is not an early warning indicator of cash flow problems?The entity continues to borrow more money than it repays.Operating cash outflowsOperating activities are paid for using proceeds raised from the issue of shares.Cash received from customers is greater than cash paid to suppliers.
Question
Which of the following is not an early warning indicator of cash flow problems?The entity continues to borrow more money than it repays.Operating cash outflowsOperating activities are paid for using proceeds raised from the issue of shares.Cash received from customers is greater than cash paid to suppliers.
Solution
The statement that is not an early warning indicator of cash flow problems is: "Cash received from customers is greater than cash paid to suppliers."
Here's why:
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"The entity continues to borrow more money than it repays." - This is an early warning sign of cash flow problems because it indicates that the entity is not generating enough cash from its operations to meet its obligations, and is therefore relying on borrowed funds.
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"Operating cash outflows" - This could be a warning sign of cash flow problems, especially if the outflows are consistently greater than inflows. It indicates that the entity is spending more cash than it is bringing in, which could lead to cash shortages in the future.
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"Operating activities are paid for using proceeds raised from the issue of shares." - This could be a warning sign of cash flow problems because it suggests that the entity is not generating enough cash from its operations to fund its activities, and is therefore relying on external financing.
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"Cash received from customers is greater than cash paid to suppliers." - This is not a warning sign of cash flow problems. In fact, it's a positive sign because it indicates that the entity is generating more cash from its customers than it is paying out to its suppliers. This could lead to an increase in cash reserves, which could be used to fund future activities or to meet unexpected expenses.
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