Question : Assertion (A): Purchase of Stock in Trade on credit will not result in Flow of Cash or Cash Equivalents.
Reason (R): Purchase of Stock in Trade on credit does not involve cash.
in the context of the above two statements, which of the following is correct?
Option 1: Assertion (A) and Reson (R) are correct but the reason (R) is not the correct explanation of Assertion (A).
Option 2: Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A)
Option 3: Assertion (A) is correct but the Reason (R) is not correct
Option 4: Both, Assertion (A) and Reason (R) are correct
Correct Answer: Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A)
Solution : Both, Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A) Because Similar to selling on credit, purchasing merchandise on credit has no impact on your cash flow . Your cash on hand decreases when you pay the bill for the purchase, which you record as a cash outflow. Receiving payment for sales later allows the business to reinvest money.
Hence the correct answer is option 2.
