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Which of the following will not rise spontaneously with an increase in sales? Accounts payable Accrued...

Which of the following will not rise spontaneously with an increase in sales?

  1. Accounts payable
  2. Accrued wages
  3. Accrued taxes
  4. Accounts receivable
  5. Notes payable

Solutions

Expert Solution

To answer this question we need to understand basic difference between those terms which are given in the options.

(a). Accounts payable: This is the amount which are due to the vendors or suppliers of the company. If sales are increasing this amount will also increase, because with the increase in sales, consumption of raw material will also increase which will lead to increase in payables to the supplier of raw materials. Hence, spontaneous increase in the value of sales will increase Accounts payables.

(b). Accrued wages: These are the amount earned by hourly labours, employees, etc, of the company at the end of the reporting period but not paid yet. As wages are considered as direct expenses, increase in the sales will have direct impact on this expense.

(c). Accrued taxes: Amount of tax incurred for the given reporting period but not paid yet. Increase in sales value will increase the toal revenue of the company for that period and that will increase the total taxable income(income before taxes) for that period, hence tax will also increase.

(d). Accounts receivables: It is the amount of money or proceeds which the company will receive from its debtors on account of sale of goods on credit. Sales will have direct impact on accounts receivables.

(e). Notes payable: It is considered as the liability for the company and written in the balance sheet of the company. Similar to loan issued to a firm. With the increase in the value of the sales notes payables value doesn't increase.

Therefore, "Notes payable will not rise spontaneously with an increase in sales value".

Hence, Option(e) is correct.

   

jeff jeffy answered 2 years ago
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