In the most general sense, which of the following would you expect to be true?
A) If a current asset account and a current liability account both increase by the same amount, there is a net use of funds.
B) If ﬁxed assets decrease by the amount of depreciation for the year, there is a net use of funds.
C) Changes in income and expense accounts do not affect sources and uses of funds.
D) If a liability account increases and an asset account decreases by the same amount, there is a net source of funds.
E) If the common stock outstanding increases there is a use of funds.

Question

Quizplus · Accepted Answer

If a liability account increases and an asset account decreases by the same amount, there is a net source of funds. This is because liabilities represent sources of funds and assets represent uses of funds. When a liability increases, it means that the company has obtained funds from another party, whereas when an asset decreases, it means that the company has used funds to purchase or invest in that asset. Therefore, the increase in liability and decrease in asset cancel each other out, leaving a net source of funds.

In the Most General Sense, Which of the Following Would