Which of the following statements is correct?
A)A decrease in the accounts receivable balance means that credit sales exceeded cash collections from customers.
B)The accounts receivable balance increases when cash collected from customers exceeds credit sales.
C)A decrease in accounts receivable is deducted from net income when determining cash flow from operating activities.
D)An increase in accounts receivable is deducted from net income when determining cash flow from operating activities.

Question

Quizplus · Accepted Answer

An increase in accounts receivable indicates that the company has made more sales on credit than it has collected in cash. When calculating cash flow from operating activities using the indirect method, this increase is deducted from net income because it represents revenue that has been recognized but not yet received in cash.

Which of the Following Statements Is Correct