Impact of increase in sales activity on cash account

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When sales increase, and terms are extended to customers, accounts receivable increases. Of course when purchasing goods from suppliers, payables increase. What makes the cash account drop when there are both receivables and payables on the books during the increased sales activity?

Cash account, affected by increased credit sales, goes down. Why?

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Cash account, affected by increased credit sales, goes down. Why? 

Final Examination for ACC 363 -Financial Accounting, 5e

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PART I — MULTIPLE CHOICE (24 points)

Instructions:  Designate the best answer for each of the following questions.

Use the following data for questions 1 and 2 below:

Quayle Company bought real estate, on which there was an old office building, for $800,000. It paid $80,000 in cash as a down payment and signed a 10% mortgage for the remainder. It immediately had the old building razed at a net cost of $70,000. Attorneys were paid $12,000 in connection with the land purchase and an additional $6,000 in connection with permits and zoning variances necessary for Quayle's new office building. $40,000 was paid for excavation for the basement of the new building, $2,800,000 was paid for construction of the new building, and $150,000 was paid for a parking lot and necessary walkways and driveways.

____    1.    The new office building should be recorded at

                  a.   $2,800,000.

                  b.   $2,846,000.

                  c.   $2,840,000.

                  d.   $2,916,000.

____    2.    Land should be recorded at a cost of

                  a.   $870,000.

                  b.   $882,000.

                  c.   $928,000.

                  d.   $922,000.

____          3. Kotsch Textile purchased machinery for $80,000 eight years ago. It was expected to have a useful life of ten years, no salvage value, and was depreciated using the straight-line method. At the end of its eighth year of use, it was retired from service and given to a junk dealer. The entry to record the retirement includes a

                              a.    debit to Loss on Disposal for $16,000.

                              b.    credit to Depreciation Expense for $8,000.

                              c.    debit to Machinery for $80,000.

                             d.    credit to Accumulated Depreciation—Machinery for $64,000.

____