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Questions and Answers
What does an increase in accounts payable indicate?
What does an increase in accounts payable indicate?
- Increase in the company's long-term assets
- Increase in the company's short-term liabilities (correct)
- Decrease in the company's long-term assets
- Decrease in the company's short-term liabilities
How does an increase in accounts payable affect the company's cash flow?
How does an increase in accounts payable affect the company's cash flow?
- Increases the company's cash flow volatility
- Improves the company's cash flow
- No impact on the company's cash flow
- Reduces the company's cash flow (correct)
What financial statement is directly impacted by an increase in accounts payable?
What financial statement is directly impacted by an increase in accounts payable?
- Income statement
- Cash flow statement
- Balance sheet (correct)
- Statement of retained earnings
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Study Notes
Accounts Payable Impact
- An increase in accounts payable indicates that a company is buying more goods or services on credit, which delays payment to suppliers.
- This delayed payment allows the company to hold onto its cash for a longer period, thereby improving its cash flow.
Cash Flow Effect
- An increase in accounts payable reduces the need for immediate cash outlays, thus increasing the company's available cash.
Financial Statement Impact
- The balance sheet is directly impacted by an increase in accounts payable, as it is a liabilities account that increases with higher payment obligations.
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