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Nesterboy [21]
3 years ago
8

Given the following changes what is the net effect on cash? (1) Accounts Receivables increases by $150; Inventory decreases by $

95; Accounts Payable increases by $225; Common dividend payment of $55.
Business
1 answer:
Karolina [17]3 years ago
6 0

Answer:

Net Cash Increase of $115

Explanation:

Receivable Increases by $150 means a cash outflow in receivable by $150 because Increase in Receivable indicates that there are more sale on credit is made than cash received from the customers. So, the outflow in the receivable section is more than the inflow.

Inventory Decreases by $95 means the inventory sold during the period is more than purchases / manufactured. It result in cash inflow as cash is not being held in the form of inventory.

Accounts Payable increases by $225 means that company is making less payment to its suppliers, so that its balance has been increase. Company made more purchases than payment made to suppliers. Net cash Inflow is observed from this.

Common dividend payment of $55 means a direct cash outflow because actual cash has been paid during the year.

Net Effect on Cash = Cash inflows - Cash outflows

Net Effect on Cash = ( Inventory decrease + Accounts Payable increase ) - ( Accounts Receivables increase + Common dividend payment )

Net Effect on Cash = ( $95 + $225 ) - ( $150 + 55 )

Net Effect on Cash = $320 - $205

Net Effect on Cash = $115

Net Cash Increase of $115

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Explanation:

This is a transposition error which is an example of error of original entry. A transposition error occurs when the figures are posted in the wrong order, while an error original entry occurs when a wrong amount is entered into the right account. This kind of error usually causes discrepancy between the bank balance and the book balance.

To correct this error in the question, we first find the difference between the right amount and the wrong amount as follows:

Difference = Right amount – Wrong amount = $272 - $227 = $45

Therefore, the difference of $45 will be added to the book balance to bring it into an agreement with the bank treatment as follows:

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