Last year Lawson Company reported sales of $150,000 on its income statement. During the year, accounts receivable decreased by $15,000 and accounts payable decreased by $35,000. The company uses the direct method to determine the net cash flows from operating activities on the statement of cash flows. The sales revenue adjusted to a cash basis would be

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When using the direct method, the decrease in accounts receivable by $15,000 indicates that cash collected from customers is $15,000 more than sales reported on the income statement. Therefore, the sales revenue adjusted to a cash basis is $150,000 + $15,000 = $165,000. Changes in accounts payable are related to cash paid for expenses, not sales revenue, and thus do not affect the calculation.

Last Year Lawson Company Reported Sales of $150,000 on Its