FRA Question - Can someone help me on this? Thankss
This is a practice question on the 2019 note. My original thought was choice C (+150,000+10,000+4,000), however, the official right answer is B, along with the explanation saying that accounts payable do not affect cash collection. I am really confused since AP is a liability account, an increase in liability isn’t a source of cash?
1. Continental Corporation reported sales revenue of $150,000 for the current year.
If accounts receivable decreased $10,000 during the year and accounts payable
increased $4,000 during the year, cash collections were:
Official Correct Answer:
Correct answer is C; $150,000 sales + $10,000 decrease in accounts receivable = $160,000 cash
collections. The change in accounts payable does not affect cash collections.
Accounts payable result from a firm’s purchases from its suppliers. (Module 25.3,
LOS 25.f, 25.g)
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