Qtopia Company uses the direct method to prepare its cash flow statement. It has reported sales revenues of $100 000 on its income statement for the year 2014. If the balance in accounts receivable has gone up by $4 000 during the year, then $4 000 will have to be added to $100 000 to calculate collections from customers.

Question

Quizplus · Accepted Answer

In the direct method, an increase in accounts receivable indicates that not all sales were collected in cash, so $4,000 should be subtracted from $100,000 to calculate cash collections from customers.

Qtopia Company Uses the Direct Method to Prepare Its Cash