Accounts receivable increased $13,000 during the current period.Sales on account for the current period were $175,000.The amount to be reported on the cash flow statement using the direct method under operating activities is:
A) $188,000
B) $175,000
C) $162,000
D) $13,000

Question

Quizplus · Accepted Answer

Under the direct method, accounts receivable is adjusted by adding the increase in accounts receivable and subtracting the decrease in accounts receivable from sales on account. In this case, there is only an increase in accounts receivable of $13,000 and no decrease, therefore we add the increase to sales on account ($175,000 + $13,000) to get the total amount of cash received from customers, which is $188,000. However, the question asks specifically for the amount to be reported on the cash flow statement under operating activities, and to arrive at that amount we need to subtract any non-operating and non-cash items included in sales. Since there is no information about any such items, we assume that the full amount of sales on account is from operating activities, and therefore the answer is $175,000.

Accounts Receivable Increased $13,000 During the Current Period