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Entourage
Newbie
Newbie

Joined: 06 Dec 2011
Online Status: Offline
Posts: 19

Posted: 30 Dec 2011 at 10:10 \| IP Logged

Hey guys, I'm having some trouble understanding this question (CPA-05986). I understand BASE, to an extent, but what really throws me off is how the question states, "cash purchases and payments on account totaling." How am I supposed to know that that is subtracted as cash payments? What about the payments on account? I think I'm just reading the question wrong so for anyone who can provide some insight, it will be very much appreciated. Thanks!

perniva
Contributor

Joined: 05 Sep 2011
Location: United States
Online Status: Offline
Posts: 55

Posted: 30 Dec 2011 at 11:08 \| IP Logged

I think there are two concepts here that come into play. The first is the reduction from Beginning balance for A/P of 64,000 down to 50,000 which means prior year purchases were paid off by only 14,000 ("..payments on account"). Now, the question is really asking how much the company purchased in the current year. If the total cash for the year going out the door was 455,000 subtract the 14,000 and the 441,000 is what was paid for in "cash payments...". These cash payments, becasue they were made in cash, never hit the accounts payable account, but you still need the A/P balances to get the answer.

__________________
FAR 05/29/2011 #82
AUD 08/31/2011 #86
REG 11/29/2011 #72
REG 01/17/2012 #89
BEC 02/29/2012 #75

Becker 2011
TEXAS

nambivar
Regular
Regular

Joined: 14 Nov 2010
Location: United States
Online Status: Offline
Posts: 144

Posted: 30 Dec 2011 at 18:08 \| IP Logged

Entourage: I understand your doubt is regarding the use of the words: cash purchases and payments on account totaling;

What I have been taught about CPA questions is: to read the question carefully and questions may/do contain distractors;
In this instance, the question really is what is the value of purchases (whether cash or on credit).
When once this is clear, we will not worry about the words "cash purchases and payments on account totaling".
We know that all purchases (whether cash or on credit) have to be settled by payment of cash eventually.

Hope this helps.
-=-=
Passed F,B 04/11, R: 08/11, A: 11/11

Entourage
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Newbie

Joined: 06 Dec 2011
Online Status: Offline
Posts: 19

Posted: 01 Jan 2012 at 16:50 \| IP Logged

Thank you very much for those explanations, they helped a lot. I got caught up on the wording and didn't think about it from a conceptual standpoint too well. Thanks again!

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