Cash Flow Effects of Balance Sheet Changes Steps:

• Identify cash impact of increase in receivables: $6,000 less cash collected, outflow of$6,000.
• Identify cash impact of increase in trade payables: $4,000 less cash paid to suppliers, inflow of$4,000.
• Identify cash impact of loan repaid: direct outflow of $10,000 in financing activities.
• Calculate net effect: -$6,000 +$4,000 - $10,000 = -$12,000 outflow.

Why B is correct:

• Matches the indirect method formula for operating cash flows, where Δ receivables is subtracted and Δ payables is added (IAS 7 or equivalent standards).

Why the others are wrong:

• A: Treats receivables increase as inflow and payables increase as outflow, reversing standard adjustments.
• C: Treats payables increase as outflow (adding $4,000 instead of subtracting), ignoring its cash-preserving effect.
• D: Same error as C, double-counting payables as outflow for total $20,000.

Final answer: B