Johnson, Inc. has just ended the calendar year making a sale in the amount of $10,000 of merchandise purchased during the year at a total cost of $7,000. Although the firm paid in full for the merchandise during the year, it has yet to collect at year end from the customer. The net profit and cash flow for the year are

Question

Quizplus · Accepted Answer

The net profit for the year is the revenue earned minus the cost of goods sold, which is $10,000 - $7,000 = $3,000. However, since the firm has not yet collected the payment, the cash flow is negative $7,000 (the cost of the merchandise). Therefore, the correct answer is C.