The correct answer is: A. Inflow of cash
A decrease in current liability indicates an inflow of cash. This is because a liability is a company’s legal obligation to pay money to another party. When a liability decreases, it means that the company has either paid off the debt or reduced its obligation. Either way, this results in an inflow of cash.
Here are some examples of current liabilities:
- Accounts payable: Money that a company owes to its suppliers for goods or services that it has purchased on credit.
- Accrued expenses: Expenses that have been incurred but not yet paid, such as salaries or interest.
- Short-term debt: Debt that is due within one year.
When a company pays off its accounts payable, it reduces its current liability and increases its cash balance. Similarly, when a company accrues expenses, it increases its current liability and decreases its cash balance. And when a company pays off its short-term debt, it reduces its current liability and increases its cash balance.
In conclusion, a decrease in current liability indicates an inflow of cash. This is because a liability is a company’s legal obligation to pay money to another party. When a liability decreases, it means that the company has either paid off the debt or reduced its obligation. Either way, this results in an inflow of cash.