[nhvic1]

A company may earn a profit during an accounting period but have less money in the bank at the end of the period than it had at the beginning. Which of the following on its own could explain this?.

A)an increase in the depreciation charge relative to the previous accounting period
B)an increase in trade debtors over the course of the period
C)the sale of fixed assets during the period
D)no paying invoices received from creditors

I really cants figure out which one is the correct answer to explain the statement... can anyone be generous to help me

[Just Looking]

Have you gone through each answer to see what effect it has on cash? Which would cause cash inflow vs outflow vs have no effect on cash? If you'll try that to reason it out and show your answers, we can guide you from there. Thanks.

[nhvic1]

I believe the answer is A since it will increase the expenses accounts but will reduced the asset account.. am I correct?

[Just Looking]

No, you are looking for something that will expain a decrease in cash. Depreciation doesn't affect cash.

[nhvic1]

The answer is b bccause increase in debtors are outflows of cash and if in case it had doubtful dates it was added to the operating profit to increase the adjusted profit... im I correct?

[Just Looking]

B is correct, but I'm not so sure your explanation is covering it. A trade debtor is the person to whom you sold goods, in other words your Accounts Receivable. Accounts Receivable are increasing because you are not collecting cash against them.

Let's just go through the other answers so you can see why it isn't either of them.

C - A sale of fixed assets would bring in cash.

D - I think this means to say not paying invoices coming in from creditors - i.e. not paying your accounts payable. Therefore, you are holding on to cash, so the cash balance wouldn't be decreasing because of this.

[nhvic1]

Ohh okay thanks yes I understand clearly thanks so much just looking