A business can make a profit and yet have a lower bank balance. Which of the following might cause this to happen?Question 4Answera.Sale of non-current assets at lossb.Charging of depreciation in the income statementc.Lengthening of the period of credit given to customersd.Lengthening of the period on credit taken from suppliers

The following scenarios can cause a business to make a profit and yet have a lower bank balance:

a. Sale of non-current assets at a loss: If a business sells its non-current assets (like property, plant, and equipment) at a loss, it means the selling price is less than the book value of the assets. This will result in a decrease in the bank balance because the cash received from the sale is less than the value of the asset on the company's books. However, this does not affect the company's profitability unless the loss is so large that it exceeds the company's operating profit.

b. Charging of depreciation in the income statement: Depreciation is a non-cash expense that reduces the company's net income but does not involve any actual cash outflow. Therefore, a company can be profitable (after deducting depreciation expense) but still have a lower bank balance because no cash is generated from charging depreciation.

c. Lengthening of the period of credit given to customers: If a company extends the credit period for its customers, it means the company allows its customers to pay for their purchases at a later date. This will delay the inflow of cash to the company, resulting in a lower bank balance. However, this does not affect the company's profitability because the sales are still recorded as revenue at the time of sale, not when the cash is received.

d. Lengthening of the period on credit taken from suppliers: If a company takes longer to pay its suppliers, it can retain its cash for a longer period, which could increase its bank balance. However, if the company is not generating enough cash from its operations to cover its expenses, the bank balance could decrease over time. This scenario does not directly affect the company's profitability.

The following scenarios could potentially cause a business to make a profit and yet have a lower bank balance:

a. Sale of non-current assets at a loss: If a business sells its non-current assets (like property, plant, and equipment) at a loss, it means the selling price is less than the book value of the assets. This will result in a decrease in the bank balance because the cash received from the sale is less than the value of the asset on the company's books. However, this does not affect the company's profitability unless the loss is so large that it exceeds the company's operating profit.

b. Charging of depreciation in the income statement: Depreciation is a non-cash expense that reduces the company's net income but does not involve any actual cash outflow. Therefore, a company can be profitable (after deducting depreciation expense) but still have a lower bank balance because no cash is generated from charging depreciation.

c. Lengthening of the period of credit given to customers: If a company extends the credit period for its customers, it means the company allows its customers to pay for their purchases at a later date. This will delay the inflow of cash to the company, resulting in a lower bank balance. However, this does not affect the company's profitability as the sales are still recorded as revenue.

d. Lengthening of the period on credit taken from suppliers: If a company takes longer to pay its suppliers, it can retain its cash for a longer period, which could potentially increase its bank balance. However, if the company is not generating enough cash from its operations, the bank balance could still decrease over time. This does not affect the company's profitability as the expenses are still recorded when incurred, not when paid.