Question

Which of the following are considered a use of cash?

a. Common stock increases. b. Inventory decreases. c. Accounts payable decrease. d. Accounts receivable decrease e. Expenses decree

Answer 1

Solution :

The following is considered as a use of cash

c. Accounts payable decrease

The Accounts payable balance is a set of liabilities that are due for payment. When the accounts payable balance decreases, it implies that cash has ben used to pay creditors. Thus a decrease in accounts payable is considered as a use of cash.

Thus the solution is option c.

The other options are incorrect due to the following reasons :

a. Common stock increases.

When the common stock is issued, the company raises capital in the form of cash. Thus when the common stock increases it is a source of cash. Hence this option is incorrect.

b. Inventory decreases.

When inventory decreases, it implies that the inventory is being sold and the company receives cash.

Thus when the inventory decreases it is a source of cash. Hence this option is incorrect.

d. Accounts receivable decrease

Accounts receivable balance is a current asset that is due for receipt. When the accounts receivable balance decreases it means that the debtors have paid their debts due to the company.

Thus when the Accounts receivable balance decreases it is a source of cash for a company. Hence this option is incorrect.

e. Expenses decrease

When expenses decrease, it is a source of cash. Hence this option is incorrect.