Briefly explain the difference between a USE of cash and a SOURCE of c

Briefly explain the difference between a USE of cash and a SOURCE of cash. Give examples of each. Briefly explain why managers want to know the uses and sources of cash.

What will be an ideal response?

ANSWER

Answer: A source of cash involves cash receipts or cash inflow, while a use of cash involves cash disbursements or cash outflow. Examples of uses of cash are: cash purchases (supplies, inventories, etc.); payments made on accounts payable (to suppliers); wages and salaries; rent or lease payments; utility payments (water, electricity, phones, etc.); shipping costs; interest payments; dividend payments; retirement of debt (paying off loans and bonds); and repurchases of stock. Examples of sources of cash are cash sales; payments received on accounts receivables (mainly credit sales); cash sales of equipment or other assets of the company; and funding sources like bank loans, bond sales, and stock sales.