Describes the possible effects of action on balance sheet

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Problem 1: At the end of Quarter 1, a company announces that its cash flows would improve in Quarter 2. To give an appearance of improved cash flows in Quarter 2, the company shifts paying cash to its suppliers from Quarter 2 to Quarter 1 by accelerating payments to its suppliers in Quarter 1. Pick one of the choices below that describes the possible effects of this action on the balance sheet at the end of Quarter 1. The company only manipulates cash flows; it does not manipulate reported income.

a. Increase prepayments [an asset] or increase payables [a liability]
b. Increase prepayments [an asset] or decrease payables [a liability]
c. Decrease prepayments [an asset] or increase payables [a liability]
d. Decrease prepayments [an asset] or decrease payables [a liability]

Reference no: EM132976751

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