A firm has just ended its calendar year making a sale in the amount of $150,000 of merchandise purchased during the year at a total cost of $112,500. Although the firm paid in full for the merchandise during the year, it is yet to collect at year end from the customer. The net profit and cash flow from this sale for the year are ________.
A) $0 and $150,000, respectively
B) $37,500 and -$150,000, respectively
C) $37,500 and -$112,500, respectively
D) $150,000 and $112,500, respectively

Question

Quizplus · Accepted Answer

The net profit from the sale is calculated as the difference between the revenue and the cost of goods sold (COGS). 
Net profit = Revenue - COGS 
Net profit = $150,000 - $112,500 
Net profit = $37,500

However, as the firm is yet to collect the payment from the customer, there is no cash inflow from this sale in the current year. In fact, the firm has already paid for the merchandise during the year, leading to a cash outflow of $112,500. Therefore, the cash flow from the sale for the year is -$112,500.

A Firm Has Just Ended Its Calendar Year Making a Sale