Sara's business lends £10 000 to one of its customers at an annual interest rate of 6%. Which two of the following statements are correct?
A. The annual receipt of interest increases cash.
B. The loan of £10 000 decreases cash in the business.
C. The loan of £10 000 has no effect on the working capital of the business.
D. Capital is decreased by £10 000 when the loan is made.

Question

Quizplus · Accepted Answer

A. The annual receipt of interest increases cash because the business receives interest payments, adding to its cash holdings.B. The loan of £10,000 decreases cash in the business because the business has to pay out this amount, reducing its cash balance.

Sara's Business Lends £10 000 to One of Its Customers