Answer to Question #244015 in Accounting for Another you

Question

A. Choose the letter that corresponds to the correct answer. (Determine the effect of the following transactions on Cash)

1. An increase in the balance of Prepaid Advertising

a. Positive c. No effect

b. Negative d. Adverse Effect

2. A decrease in taxes payable

a. Positive c. No effect

b. Negative d. Adverse effect

3. Initial investment by the owner

a. Positive c. No effect

b. Negative d. Adverse effect

4. Purchase of office equipment

a. Positive c. No effect

b. Negative d. Adverse effect

Answer 1

Solution:

1.). The correct answer is b. negative.

Prepaid advertising refers to payment for adverts not yet undertaken. It reduces the cash balance.

 

2.). The correct answer is a. positive.

A decrease in tax payable will have a positive effect on cash as less cash will be used to pay taxes.

 

3.). The correct answer is a. positive.

The initial investment by the owner refers to capital injection which will have a positive effect on cash since it will increase the cash levels.

 

4.). The correct answer is a. negative.

Purchase of office equipment will negatively affect the cash account by reducing it since cash will be used to purchase the office equipment