What does an increase in accounts payable signify for a business?

What does an increase in accounts payable signify for a business?

• A. The business has reduced its cash flow
• B. The business has invested in more assets
• C. The business has borrowed cash by receiving materials
• D. The business has improved its cash flow position

Answer: (C)

An increase in accounts payable indicates that a business is acquiring goods or services on credit rather than paying for them immediately. This scenario typically means that the business has received materials or services, which implies that it is effectively borrowing cash in the sense that it is postponing payment for these items. This allows the company to utilize those materials or services to potentially generate revenue before having to pay for them, thus maintaining its cash flow for other operational needs. In the context of business finance, accounts payable is a liability on the balance sheet, and an increase suggests that the company is taking advantage of credit terms provided by suppliers. This can be beneficial in managing short-term cash flow, as the business can enhance its operations without the immediate outflow of cash.

An increase in accounts payable indicates that a business is acquiring goods or services on credit rather than paying for them immediately. This scenario typically means that the business has received materials or services, which implies that it is effectively borrowing cash in the sense that it is postponing payment for these items. This allows the company to utilize those materials or services to potentially generate revenue before having to pay for them, thus maintaining its cash flow for other operational needs.

In the context of business finance, accounts payable is a liability on the balance sheet, and an increase suggests that the company is taking advantage of credit terms provided by suppliers. This can be beneficial in managing short-term cash flow, as the business can enhance its operations without the immediate outflow of cash.