A firm has just ended the calendar year making a sale in the amount of $150,000 of merchandisepurchased during the year at a total cost of $112,500. Although the firm paid in full for themerchandise 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 is calculated as the total sale revenue minus the cost of goods sold, which is $150,000 - $112,500 = $37,500. However, since the firm has yet to collect payment from the customer, there is a decrease in cash flow of $150,000 (the sale amount) and an increase in accounts receivable of $150,000. Therefore, the cash flow for the year is -$150,000.

A Firm Has Just Ended the Calendar Year Making a Sale