Assume that the direct method is used to prepare the operating activities section of the statement of cash flows.Why is a decrease in Accounts Receivable decrease added to sales revenue when computing cash collected from customers?
A)There were more cash sales than credit sales during the year.
B)There were more collections of Accounts Receivable than sales on account during the year.
C)There were more credit sales than cash sales during the year.
D)There were more sales on account than collections of Accounts Receivable during the year.

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 decreases,then cash collections were more than sales on account.To convert sales revenue to the cash collected,we need to 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