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: 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)

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

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!



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

My pleasure.