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Budgeted of payment of payables

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Budgeted of payment of payables

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by Iniss.
Viewing 4 posts - 1 through 4 (of 4 total)
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    Posts
  • December 15, 2023 at 1:21 pm #696829
    Iniss
    Participant
    • Topics: 53
    • Replies: 54
    • ☆☆

    The following items were extracted from a company’s budget for next month:

    Purchases on credit $360,000
    Expected decrease in inventory over the month $12,000
    Expected increase in trade payables over the month $15,000
    What is the budgeted payment to trade payables for the month?

    A. $333,000
    B. $345,000
    C. $357,000
    D. $375,000

    I chose D, however, the correct answer is B. I thought the increase in payables should be added to the credit purchase amount for the month (15000 + 360000 =375000). Anyway, the increase in payables was deducted from it. Can you please explain why?

    December 15, 2023 at 2:08 pm #696830
    LMR1006
    Keymaster
    • Topics: 4
    • Replies: 1496
    • ☆☆☆☆☆

    Budgeted payment to trade payables
    = Purchases on credit – Expected increase in trade payables
    = $360,000 – $15,000
    = $345,000

    Therefore, the budgeted payment to trade payables for the month is $345,000.

    Because you have bought $360k purchases on credit, then you have an expected $15k increase in trade payables (This is expected to be billed to the company by its suppliers for goods delivered to or services consumed by the firm in the ordinary course of business over the month)

    The increase in payables is not added to the credit purchase amount because it represents the expected increase in trade payables, which is a liability. It is deducted from the purchases on credit to determine the net payment to trade payables for the month.

    December 15, 2023 at 2:08 pm #696831
    LMR1006
    Keymaster
    • Topics: 4
    • Replies: 1496
    • ☆☆☆☆☆

    Budgeted payment to trade payables
    = Purchases on credit – Expected increase in trade payables
    = $360,000 – $15,000
    = $345,000

    Therefore, the budgeted payment to trade payables for the month is $345,000.

    Because you have bought $360k purchases on credit, then you have an expected $15k increase in trade payables (This is expected to be billed to the company by its suppliers for goods delivered to or services consumed by the firm in the ordinary course of business over the month)

    The increase in payables is not added to the credit purchase amount because it represents the expected increase in trade payables, which is a liability. It is deducted from the purchases on credit to determine the net payment to trade payables for the month.

    December 16, 2023 at 1:54 pm #696897
    Iniss
    Participant
    • Topics: 53
    • Replies: 54
    • ☆☆

    Okay, thank you!

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