Question

Which of the following is not an application of cash?

• A. Increase in Debtors
• B. Increase in Creditors
• C. Increase in Stock
• D. Increase in Prepaid Expenses

Hint:

Increase in assets = cash outflow (application); Increase in liabilities = cash inflow (source).

Answer 1

The Correct Option is B

Step 1: Application vs. source of cash.
- Application of cash = Uses of cash, i.e., where cash goes out (increase in assets or decrease in liabilities).
- Source of cash = Inflow of cash, i.e., where cash comes in (increase in liabilities or decrease in assets).
Step 2: Check each option.
- (A) Increase in Debtors → Application of cash (more credit sales = less cash).
- (B) Increase in Creditors → This is a source of cash (firm gets goods on credit, no cash outflow).
- (C) Increase in Stock → Application of cash (cash spent to buy stock).
- (D) Increase in Prepaid Expenses → Application of cash (advance payment reduces cash).
Step 3: Conclude.
Therefore, “Increase in Creditors” is not an application of cash.
Final Answer: \[ \boxed{\text{Increase in Creditors}} \]