A use of cash can be determined by:
A)A decrease in a liability.
B)An increase in an asset.
C)An increase in retained earnings.
D)Both B and C.
E)Both A and B.

Question

Quizplus · Accepted Answer

A use of cash can be determined by both an increase in an asset and a decrease in a liability. When cash is used to purchase an asset, such as equipment or inventory, there is an increase in the asset account and a decrease in the cash account. When cash is used to pay off a liability, such as a loan or accounts payable, there is a decrease in the liability account and a decrease in the cash account. An increase in retained earnings does not necessarily indicate a use of cash, as it can be a result of profits earned from operations.

A Use of Cash Can Be Determined By