A contractor pays invoices totaling $45,000 during the month and receives new invoices worth $52,000. If the beginning accounts payable balance was $38,000, what is the ending balance?
Correct Answer
C) $45,000
Ending A/P = Beginning A/P + New Invoices - Payments = $38,000 + $52,000 - $45,000 = $45,000. This follows the standard accounts payable calculation.
Why This Is the Correct Answer
The correct answer follows the fundamental accounts payable formula: Ending Balance = Beginning Balance + New Invoices - Payments Made. Starting with $38,000, adding $52,000 in new invoices, then subtracting $45,000 in payments gives us $45,000. This represents the amount the contractor still owes to vendors at month-end.
Why the Other Options Are Wrong
Option A: $52,000
Option C ($135,000) appears to be the sum of all three amounts ($38,000 + $52,000 + $45,000), which incorrectly adds payments instead of subtracting them. Payments reduce accounts payable, they don't increase it.
Option B: $45,000
Option B ($52,000) only represents the new invoices received during the month, ignoring both the beginning balance and the payments made. This would be incorrect as it doesn't account for the complete accounts payable activity.
Memory Technique
Use the acronym 'BAN-P': Beginning + Add New invoices - Payments = ending balance. Think 'BAN Payments' to remember the formula structure.
Reference Hint
Look up 'Accounts Payable' or 'Current Liabilities' in the accounting/financial management section of your contractor reference manual
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