Question

Under accrual basis accounting, if the balances in both accounts receivable and accounts payable increase during the year

A) the increase in both the accounts receivable and accounts payable balances will result in a increase in cash for the period.

B) the increase in both the accounts receivable and accounts payable balances will result in a decrease in cash for the period.

C) the increase in the accounts receivable balance would result in a decrease in cash for the period.

D) the increase in the accounts payable balance would result in a decrease in cash for the period.

Answer 1

Under accrual basis accounting, an increase in accounts receivable leads to a decrease in cash for the period, while an increase in accounts payable leads to an increase in cash for the period.

Step-by-step explanation:

Under accrual basis accounting, if the balances in both accounts receivable and accounts payable increase during the year, the increase in the accounts receivable balance would result in a decrease in cash for the period. This is because an increase in accounts receivable means that the company has made sales on credit, and cash has yet to be received for those sales. On the other hand, the increase in the accounts payable balance will result in an increase in cash for the period. This is because an increase in accounts payable means that the company has purchased goods or services on credit, and cash has yet to be paid for those purchases.