The chief financial officer (CFO), Karl Richland, of Semtell Company in Cincinnati, Ohio, is asking for your advice. The CFO explains sales are increasing but there is a constant matter of not having enough cash to meet payroll or pay vendors within 30 days.

Checklist: Using the information contained in the companys cash flow statement, prepare an informational business letter to the CFO to explain:

1. Why cash can go down even when sales are up.
2. How increases in accounts receivables and inventory balances affect cash flows within a company.
3. What effect increases or decreases in asset and liability accounts have on cash flow.
4. How changes in accounts payable balances impact cash flows.
5. Recommend a possible solution for the companys shortage of working capital.