BUSINESS ADMINISTRATION
BUSINESS ENVIRONMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Cash increases and Accounts Receivable decreases
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Accounts Receivable increases and Service Revenue decreases
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Cash increases and Service Revenue increases
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Cash increases and Accounts Payable decreases
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Detailed explanation-1: -When cash is received from a customer on account, the corresponding amount is reduced from the accounts receivable account and added to the cash account. Since both of these accounts are current assets, there will be no change in the current assets and total assets.
Detailed explanation-2: -Since an increase in A/R signifies that more customers paid on credit during the given period, it is shown as a cash outflow (i.e. “use” of cash) – which causes a company’s ending cash balance and free cash flow (FCF) to decline.
Detailed explanation-3: -When AR decreases, more cash enters your company from customers paying off their credit accounts. The amount by which AR has been reduced will be added to net earnings. To reiterate, an increase in receivables represents a reduction in cash on the cash flow statement, and a decrease in it reflects an increase in cash.
Detailed explanation-4: -Collection of Cash from an Account Receivable When the company receives cash from an accounts receivable, your cash account increases by the amount of the collection and the accounts receivable account decreases by the same amount.