FRA Question - Can someone help me on this? Thankss

CFA Level I FRA
#1

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: A. $154,000. B. $160,000. C. $164,000. 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)
#2

Cash collections means cash received from customers; it has nothing to do with purchases and Accounts Payable.

#3

Got you, but what if a decrease in Accounts Payable? Would that mean the company paid cash to its supplier? Would that affect the cash collection?

Thank you so much!

#4

Yes.

No.

If you pay Bob, does that change how much money you received from Mary?

My pleasure.