how does an increase in accounts payable affect the cash flow? and also how does paying your accounts payable affect the cash flow
Trending Content - Investment Banking Forum
Career Resources
WSO Free Modeling Series - Now Open Through
August 31, 2026
9 Free Financial Modeling Lessons
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
+Bonus: Get 27 financial modeling templates in swipe file
+Bonus: Get 27 financial modeling templates in swipe file
High Finance Applications
Guaranteed
Get at least one offer GUARANTEED
- 1:1 support
- 92% success rate
- 2,000+ mentor network
- Unlimited Live bootcamps
- AI for resume + LinkedIn
- Networking automation tools
- HireVue simulation tool
- Full course library
- Private Slack community
- 20hrs of mocks
- + much more...
Accounts payable affect your cash flows because of the way accounting works for the computation of cash flows. The computation of cash flows is derived from the income statement: your revenues and costs. The problem is that those flows are dictated by accounting principles, and do not fully recognize the real cash flows of the company. Let's take an example:
You have 200 of revenues and 100 of operating costs. You already received cash from the revenues but have not paid your suppliers. Your accounts payable are therefore 100. If you compute the cash flow from the period from the income statement, you would find 200 - 100 = 100. In reality, because you haven't paid your suppliers yet, the cash flow is 200 from the cash you collected from revenues, which is indeed the result of revenues - costs + AP = 200 - 100 + 100.
From this you can infer that paying your accounts payable decrease your cash flow, and that an increase in accounts payable should lead to an increase in cash flow.
It shortens the cash conversion cycle. You get to keep cash on hand for a longer period of time.
Minima quo nihil suscipit et voluptatem dolores ab. Qui quia placeat nihil ratione quisquam veniam. Possimus ratione necessitatibus aut. Voluptatem fugit quos architecto laboriosam nobis non sed. Quidem consequatur rerum placeat rerum veniam.
Sit eaque facere dicta nam quisquam. Officia consectetur est sit dicta. Ratione corporis consectetur asperiores voluptas distinctio. Nesciunt ullam pariatur inventore quos occaecati veniam magnam sint. Consequatur aspernatur ratione dignissimos quisquam consequatur qui.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...