CA Foundation Exam > CA Foundation Questions > Decrease in the amount of trade payables resu...
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Decrease in the amount of trade payables results in
- a)Increase in cash.
- b)Decrease in bank over draft account.
- c)Decrease in assets.
- d)No change in assets.
Correct answer is option 'C'. Can you explain this answer?
Most Upvoted Answer
Decrease in the amount of trade payables results ina)Increase in cash....
Explanation:
Trade payables are the amount owed by a company to its suppliers for goods and services received on credit. A decrease in the amount of trade payables means that the company has paid off some of its debts to its suppliers. This has the following impact on the financial statements:
Effect on the balance sheet:
- Decrease in liabilities: Trade payables are a liability for the company. A decrease in the amount of trade payables means that the company's liabilities have decreased.
- Decrease in current assets: Trade payables are also a component of current assets, as they represent the amount of cash that the company owes to its suppliers. A decrease in the amount of trade payables means that the company's current assets have decreased.
Effect on the cash flow statement:
- Increase in cash flow from operating activities: When the company pays off its trade payables, it uses its cash reserves to make the payments. This results in an increase in cash flow from operating activities.
Conclusion:
Hence, the correct answer is option C, i.e., a decrease in the amount of trade payables results in a decrease in assets.
Trade payables are the amount owed by a company to its suppliers for goods and services received on credit. A decrease in the amount of trade payables means that the company has paid off some of its debts to its suppliers. This has the following impact on the financial statements:
Effect on the balance sheet:
- Decrease in liabilities: Trade payables are a liability for the company. A decrease in the amount of trade payables means that the company's liabilities have decreased.
- Decrease in current assets: Trade payables are also a component of current assets, as they represent the amount of cash that the company owes to its suppliers. A decrease in the amount of trade payables means that the company's current assets have decreased.
Effect on the cash flow statement:
- Increase in cash flow from operating activities: When the company pays off its trade payables, it uses its cash reserves to make the payments. This results in an increase in cash flow from operating activities.
Conclusion:
Hence, the correct answer is option C, i.e., a decrease in the amount of trade payables results in a decrease in assets.
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Community Answer
Decrease in the amount of trade payables results ina)Increase in cash....
Curr Assets include cash and bank. As trade payables decreases it means we have paod them off our liability has decreased but along with that our balance of Curr assets(Bank - cash bal) decrease at the same time. Hence C is correct
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Decrease in the amount of trade payables results ina)Increase in cash.b)Decrease in bank over draft account.c)Decrease in assets.d)No change in assets.Correct answer is option 'C'. Can you explain this answer?
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