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 from this sale for the year are
A) $3,000 and -$7,000 respectively.
B) $3,000 and $7,000 respectively.
C) $3,000 and $10,000 respectively.
D) $7,000 and -$3,000 respectively.

Question

Quizplus · Accepted Answer

The net profit is $3,000 ($10,000 sale - $7,000 cost). The cash flow is -$7,000 because the firm paid $7,000 for the merchandise but has not yet collected the $10,000 from the customer.