(Appendix 10A) A firm expects credit sales for the week to amount to $3,000, accounts receivable to increase by $200, and accounts payable to decrease by $500. Given this information, what will be the effect on cash?
A) $2,700 increase
B) $2,300 increase
C) $1,700 increase
D) $1,300 increase

Question

Quizplus · Accepted Answer

The firm's cash increases by the amount of credit sales ($3,000), decreases by the increase in accounts receivable (-$200), and increases by the decrease in accounts payable ($500). So, the net effect on cash is $3,000 - $200 + $500 = $3,300 - $200 = $3,100. However, there seems to be a mistake in my calculation as none of the options match this result. Correctly, considering the options provided and the scenario, the effect on cash should be calculated as follows: the increase in accounts receivable means less cash received (subtracting $200 from sales), and the decrease in accounts payable means more cash paid out (subtracting $500). So, the correct calculation from the options given should be $3,000 - $200 - $500 = $2,300 increase in cash, which matches option B. My initial explanation contained a calculation error, and the correct answer, based on the provided options and typical accounting practices, should indeed be a $2,300 increase in cash.

(Appendix 10A) a Firm Expects Credit Sales for the Week