Assume that the direct method is used to prepare the operating activities section of the statement of cash flows.Which related balance sheet account will explain the difference between revenues on the income statement and cash collected from customers?
A)Inventory
B)Accounts Payable
C)Cost of Goods Sold
D)Accounts Receivable

Question

Quizplus · Accepted Answer

When sales are recorded,Accounts Receivable increases,and when cash is collected,Accounts Receivable decreases.This means that if Accounts Receivable increases,then cash collections were less than sales on account.To convert sales revenue to the cash collected,we need to subtract increase in Accounts Receivable from (or add the decrease in Accounts Receivable to)Sales Revenue to determine the cash collected from customers.

Assume That the Direct Method Is Used to Prepare the Operating