A company's unearned rental revenue account increases from the beginning to the end of the year. In the statement of cash flows using the direct method, the cash collected from tenants would be
A) rent revenue plus unearned rent revenue at the beginning of the year.
B) rent revenue plus the increase in unearned rent revenue during the year.
C) rent revenue minus the increase in unearned rent revenue during the year.
D) equal to rental revenue on the income statement.

Question

Quizplus · Accepted Answer

The correct answer is B because when using the direct method for the statement of cash flows, the cash collected from tenants includes the rent revenue recognized during the year plus the increase in unearned rent revenue. The increase in unearned rent revenue indicates that the company received more cash than the rent revenue recognized, as some of the cash received is for future periods.

A Company's Unearned Rental Revenue Account Increases from the Beginning