If the December 31,Year 1,balance of accounts payable is lower than the January 1,Year 2,balance,then the amount of cash payments will exceed the purchases on account for the year.

Question

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If the balance of accounts payable has decreased from December 31, Year 1 to January 1, Year 2, it means that more payments have been made towards outstanding debts than new purchases on account. This indicates that cash payments have exceeded purchases on account for the year.

If the December 31,Year 1,balance of Accounts Payable Is Lower