Question

cash collections of accounts receivable will increase ____ and decrease _____

1) accounts payable , accounts receivable

2) accounts receivable, accounts payable

3) cash, accounts receivable

4) cast, accounts payable

when developring cost functions , which of the following is false

1) the cost funtion must be believable

2) the cost function does not have to be reliable

3) personal observations of cost and activities provide the best evidence of a plausible relationship between a cost and its cost driver

4) the cost function should explain past cost behavior

Answer 1

1) Accounts receivable means money owned by debtors to a company. It means that the customers have received the goods on credit and will repay the money within the credit period. Once the debtors pay off their dues, the company will receive money and reduce the debtors in balance sheet.

Example, a debtor named Mr. A owes company XYZ Ltd. a sum of Rs. 1000. In the balance sheet the debtors (accounts receivable) will be Rs. 1000. Assume that the company has recorded cash in hand of Rs. 300. Now, if Mr. A pays back Rs. 400 to the company XYZ out of the total dues of Rs. 1000, then the company will receive cash and reduce the dues of Mr. A by Rs. 400. Thus, now in the Balance Sheet, Cash will stand at Rs. 700 (300+400) and debtors will stand at Rs. 600 (1000-400)

Thus, cash collections of accounts receivable will increase the cash and will decrease the accounts receivable.

2) False statement:  The cost function does not have to be reliable

This is because, a cost function should be reliable and should perform consistently to achieve better results.