Which of the following effects on accounts from a transaction is possible?1 pointCash decreases; Accounts Payable (A/P) decreasesCash increases; Accounts Receivable (A/R) increasesRent expense increases; Cash increasesAccounts Receivable (A/R) decreases; Sales revenue increasesInventory increases; Accounts Payable (A/P) decreases
Question
Which of the following effects on accounts from a transaction is possible?1 pointCash decreases; Accounts Payable (A/P) decreasesCash increases; Accounts Receivable (A/R) increasesRent expense increases; Cash increasesAccounts Receivable (A/R) decreases; Sales revenue increasesInventory increases; Accounts Payable (A/P) decreases
Solution
The possible effects on accounts from a transaction are:
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Cash decreases; Accounts Payable (A/P) decreases: This is possible. For example, when a company pays off its debts or bills, its cash account would decrease and its accounts payable would also decrease.
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Cash increases; Accounts Receivable (A/R) increases: This is not typically possible. Cash and Accounts Receivable are both assets. When one increases, the other usually decreases. For example, when a company collects cash from a customer, its cash increases and its accounts receivable decreases.
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Rent expense increases; Cash increases: This is not possible. When a company pays rent, its rent expense increases and its cash decreases.
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Accounts Receivable (A/R) decreases; Sales revenue increases: This is possible. For example, when a company makes a sale on credit, its accounts receivable increases and its sales revenue also increases. Later, when the company collects cash from the customer, its accounts receivable decreases but its sales revenue does not change.
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Inventory increases; Accounts Payable (A/P) decreases: This is not typically possible. When a company purchases inventory on credit, its inventory and accounts payable both increase. When the company pays cash to settle the payable, its inventory does not change but its accounts payable decreases.
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