Assume a company uses the direct method to prepare its statement of cash flows.If the company's Accounts Receivable increase during the accounting period,the change in Accounts Receivable is:
A)added to the change in the Cash account to calculate cash collected from customers.
B)subtracted from Sales Revenue to calculate the cash collected from customers.
C)added to Sales Revenue to calculate the cash collected from customers.
D)subtracted from the change in the Cash account to calculate cash collected from customers.

Question

Quizplus · Accepted Answer

Accounts Receivable increases when sales are made on account and it decreases when cash is collected from customers.An overall increase in this account,then,implies that cash collections were less than sales on account.To convert from the higher sales number that is included in net income to the lower cash collected from customers,we subtract the increase in Accounts Receivable from Sales Revenue to calculate the cash collected from customers.

Assume a Company Uses the Direct Method to Prepare Its