Question

State whether the following would result in inflow, outflow, or no flow of cash:
(i) Bill Receivable endorsed to Creditors
(ii) Old vehicle written off

Answer 1

(i) Bills receivables endorsed to creditors indicates neither an inflow nor an outflow. There is no flow of cash involved in such a transaction. It is referred to as mutual indebtedness wherein only the current liabilities and current asset balance gets reduced in the Balance Sheet. Cash balance remains unaffected.

(ii) Writing off old vehicles implies charging depreciation in the Profit and Loss Account on a year-to-year basis. No cash is involved in such a transaction. Depreciation itself is a non-cash transaction. Furthermore, if the vehicle has become obsolete, the entire amount of vehicle could be charged to the Profit and Loss Account in the year in which the vehicle became obsolete.