Deck 7: Amounts Receivable and Amounts Payable

Question 1

An increase in payables means that the profit will be less than the cash flow.

Answer 1

True

Question 2

Hazel's business bank account was overdrawn by £3000 and she has £6000 owing to her from customers. During the period she receives cheques for £5 200 and hears that a customer who owed her £300 has been declared bankrupt. What is the effect of the above transactions on net assets ?

A) Increase net assets by £5 200
B) Increase net assets by £4 900
C) Decrease net assets by £300
D) Decrease net assets by £800

Answer 2

C

Question 3

What would be the effect of the return of goods previously sold on credit before payment is received on the statement of financial position, the income statement and the cash flow statement?

A) Increase the inventory and liabilities in the statement of financial position, no effect on the income statement, no effect on the cash flow statement
B) Increase the inventory and receivables in the statement of financial position, charge expense to the income statement, show cash outflow in the cash flow statement
C) Increase the inventory and reduce the receivables in the statement of financial position, no effect on the income statement, no effect on the cash flow statement
D) Increase the inventory and reduce the receivables in the statement of financial position, reduce sales and cost of sales in the income statement, no effect on the cash flow statement
E) Increase the inventory and reduce the receivables in the statement of financial position, reduce sales in the income statement, no effect on the cash flow statement

Answer 3

D

Question 4

Having calculated the profit for the year you find that the owner has withdrawn goods which had been included as part of inventory for personal use. What is the effect of this?

A) Inventory has to be reduced and the expense has to be charged to the income statement
B) Cost of sales has to be reduced and the amount charged to the owners equity
C) Profit increases and owners equity increases

Question 5

What is the effect of a bad debt on the statement of financial position, the income statement and the cash flow statement?

A) Reduce the receivables in the statement of financial position, no effect on the income statement, no effect on the cash flow statement
B) Reduce the receivables in the statement of financial position, show as expense in the income statement, no effect on the cash flow statement
C) No effect on the statement of financial position, show as expense in the income statement, no effect on the cash flow statement
D) No effect on the statement of financial position, show as expense in the income statement, reduce the cash inflows in the cash flow statement

Question 6

Chris runs a business as a conference organiser and in the period ran a major conference which earned fees of £60000 of which £55000 was received in advance. Of the remaining £5000 all except £400 is collectable. He paid out £12000 on account for venue hire and still owes £2000. In addition he owes £900 for catering and also owes money for internet charges which he estimates to be around £600 although the bill for this has yet to be received. What are the balances on the receivables and payables accounts at the end of the period?

A) Receivables £60000, payables £12 900, accruals £600
B) Receivables £5000, payables £2 900, accruals £600
C) Receivables £5000, payables £2000, accruals £1 500
D) Receivables £4 600, payables £2 900, accruals £600
E) Receivables £4 600, payables £2000, accruals £600

Question 7

What is the effect of an accrual in respect of electricity used during the period on the statement of financial position, the income statement and the cash flow statement?

A) No effect on the statement of financial position, charge as an expense to the income statement, no effect on the cash flow statement
B) No effect on the statement of financial position, charge as an expense to the income statement, increase the cash outflows in the cash flow statement
C) Increase the current liabilities in the statement of financial position, charge as an expense to the income statement, no effect on the cash flow statement
D) Increase the current assets and current liabilities in the statement of financial position, no effect on the income statement, no effect on the cash flow statement

Question 8

A bad debt should be taken off the figure or sales revenue.

Question 9

Trade payables are expenses of the year in which they arise.

Question 10

The difference between cash flow and profit can be attributed in part to changes in payables and receivables.

Question 11

An accrual is a current asset.

Question 12

A business had receivables of £200 at the start of the period sells £4000 of goods on credit and receives payments of £ 3 500 in the period. What are the receivables at the end of the period?

A) £700
B) £500
C) £300
D) £200
E) None of the above

Question 13

An increase in receivables means that the profit will be less than the cash flow.

Question 14

A prepayment is money received from a customer in advance.

Question 15

A sales return should be treated in the same way as a bad debt.

Question 16

An increase in trade payables reduces the cost of sales.

Question 17

Accruals are estimates of known liabilities for which invoices have not been received.

Question 18

What was the net cash flow of Chris's business for the period?

A) £8000
B) £18000
C) £13000
D) £7100
E) £6500