Register now or log in to join your professional community.
A- A/R Account will reduce
B- current Ratio will increase
C- current ratio will decrease
D- working capital will increase
My answer is A. A/R Account will reduce.
A r account will be reduce option a
Letter A. The entry would be Debit Cash for the amount collected and Credit A/R Account
Account receivable will be reduced and the cash or bank account will show a corresponding increase. Since AR as well as cash/bank are constitents of Current assets, there will not be any increase or decrease either in Current assets or on working capital (Unless and until cash is used to settle any current liabilities).
The Correct answer is : A- A/R Account will reduce, because the entry will be:
Dr. Cash
Cr. A/R
- B & C is not Correct because Current Ratio = Current Assets / Current Liabilities and the both Cash and A/R are current assets so the total affect of the previous entry on Current assets will be Zero.
- D also not correct because the working Capital = Current assets - Current Liabilities
and the total affect of the previous entry on Current assets is Zero and no affect on the current Liabilities.
Reduce A/R A/c, due to collection
No (A) the A/R Balance will reduce
No.(B) , (C) And (D) are wrong cos No effect on current ratio nor working capital
current Ratio and working capital will not be changed by collecting A/R
account receivable accounts will reduce
