All increases in current assets excluding cash (end balance being more than the beginning balance) increase working capital but reduce cash flow from operations and vice versa.
Adjustments related to changes in current assets to compute cash flows generated from operations.
Accounts Receivable:
- Increases—subtract from net income to get operating cash flow
- Decreases—add to net income to get operating cash flow
Inventory:
- Increases—subtract from net income to get operating cash flow
- Decreases—add to net income to get operating cash flow
Other Current Assets (e.g., prepaid expenses):
- Increases—subtract from net income to get operating cash flow
- Decreases—add to net income to get operating cash flow
