Question

Which of the following is a use of cash? Multiple Choice

An increase in accounts payable.

A decrease in fixed assets.

An increase in accounts receivable.

An increase in common shares.

An increase in bonds payable.

Answer 1

Option (c) is correct

An increase in accounts receivable is a use of cash. An increase in accounts receivable means that goods or inventory is sold on credit. So, there is a use of cash for the amount of goods / inventory sold on credit. When the accounts receivable will be collected, it will reduce their balance and it will be considered as source of cash.

Options (a), (d) and (e) are incorrect as increase in liabilities or equities (accounts payable, bonds payable and common shares) means that there is inflow or source of cash by purchase on credit or by issuing bonds or shares)

Option (b) is incorrect as a decrease in fixed assets constitutes source of cash as it will mean that there is a sale of fixed assets.