📦Level Basic - IB Technical #6

Welcome to the 6th edition of Daily Technical Questions presented by TheFinanceGrind

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TODAY’S TECHNICAL INTERVIEW QUESTION

💬 Walk me through how a $100 increase in Accounts Receivable affects the three financial statements.

“If Accounts Receivable (A/R) increases by $100, it means the company recorded revenue it hasn’t received in cash yet. Starting with the Income Statement, there’s no change — revenue was already recognized when the sale occurred, so Net Income stays the same.

On the Cash Flow Statement, Net Income is unchanged, but under Changes in Working Capital, A/R increasing by $100 is a use of cash, so Cash from Operations drops by $100.

On the Balance Sheet, A/R (an asset) increases by $100, while Cash decreases by $100 — so total assets stay flat. Liabilities and Equity remain unchanged, so the balance sheet stays balanced.”

❌ Common Mistakes for Newbies

Confusing A/R with Cash
→ Revenue was earned, not collected — no cash has come in yet.

Forgetting the Working Capital Adjustment
→ Changes in current assets/liabilities affect cash flow — A/R increase = cash outflow.

Thinking A/R Affects Income Statement Directly
→ It doesn’t — revenue recognition already happened.

⚡ TL;DR (Quick Recap for Newbies)

Income Statement:
No change — revenue already recognized.

Cash Flow Statement:
No change in Net Income
→ Subtract $100 increase in A/R
→ Cash ↓ $100

Balance Sheet:
Cash ↓ $100, A/R ↑ $100
→ Assets unchanged, Balanced ✅

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