Martin Company Needs Additional Time to Pay Its Accounts Payable

question 23

Multiple Choice

Martin Company needs additional time to pay its accounts payable to Boster Company. Martin makes a written promise to pay Boster the amount on a certain date. Martin records this transaction as follows:

• A) debit Notes Payable; credit Accounts Payable.
• B) debit Cash; credit Accounts Payable.
• C) debit Accounts Payable; credit Notes Payable.
• D) debit Notes Payable; credit Cash.

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Definitions:

Indirect Method

A way of reporting cash flows from operating activities on the cash flow statement, where net income is adjusted for changes in balance sheet accounts to reconcile to cash provided by or used in operations.

Comparative Balance Sheets

Financial statements that present the assets, liabilities, and equity of an entity at different points in time for comparison.

Free Cash Flow

The cash a company generates after accounting for cash outflows to support operations and maintain capital assets.

Cash Budgeting

The process of estimating future cash inflows and outflows to determine the cash position and to plan for any surplus or deficit.