If accounts payable increase during an accounting period, then the cash paid for merchandise purchased is less than the merchandise purchases for the period.

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BlackTom AI · Accepted Answer

Question restatement: The statement says that if accounts payable (AP) increases during an accounting period, then the cash paid for merchandise purchased is less than the merchandise purchases for the period. Answer options: True, False.

Option 1: True. To evaluate, use the standard relationship: Ending AP = Beginning AP + Purchases on account − Cash paid. Rearranging gives Cash paid = Beginning AP + Purchases − Ending AP = Purchases − (Ending AP − Beginning AP).
- If AP increases over the period, then Ending AP − Beginning AP is positive. Therefore, Cash paid = Purchases − (positive amount), which is less than Purchases.
- This shows that when AP rises, the cash paid for merchandise (cash outlay) is smaller than the total merchandise purchases for the period, since part of the purchases were financed on credit and not paid in cash immediately.
- This conclusion holds under the usual assumption that the only building blocks are purchases, cash payments, and changes in AP; it does not require that all purchases be on credit, because the net effect still yields cash paid < purchases when AP increases.

Option 2: False. This would claim that cash paid equals or exceeds purchases when AP increases. The math above contradicts this: an increase in AP reduces cash paid relative to purchases, since more of the purchases are financed via credit. Therefore, marking this option as false would ignore the fundamental accounting relationship and is incorrect.

In summary, the core idea is that the cash disbursed to suppliers is the purchases minus the increase in accounts payable. An increase in AP reduces cash payments relative to purchases, making the statement True rather than False.

If accounts payable increase during an accounting period, then the cash paid for merchandise purchased is less than the merchandise purchases for the period.

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