A change in assets or liabilities of a business can positively or negatively affect the cash flow of the particular business. Sometimes change in assets and liabilities may result in some serious problem in the financial matters of a business. For example a change in the account receivable can adversely affect the cash flow of the business. Increase in account receivable hurts the cash flow while a decrease in account receivables brings a positive effect on the cash flow. As we know accounts receivables indicate the amount of money still pending to be received from the customers who purchased products or services on credit. Another example of asset is that of inventory that can also affect the cash flow. An increase in inventory negatively affects the cash flow where as a decrease helps in stabilizing the cash flow. Another asset account that is prepaid expense change can also hurt the cash flow of the business. An increase in prepaid expense will have an adverse affect on the cash flow. Depreciation factor that is also associated with the long term assets of a business have a positive effect on the business cash flow. As we know depreciation expense decreases the book value of the asset there is no cash outlay thus resulting in a positive effect on cash flow.
In the same way liabilities also have effects on the cash flow of business. For example if short term operating liabilities are increased it will bring a positive effect on the cash flow.