Qtopia Company uses the direct method to prepare its cash flow statement.It has reported sales revenue of $100 000 on its income statement for the year 2016.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

According to the direct method, collections from customers are calculated by subtracting the increase in accounts receivable from sales revenue, not adding it. Therefore, the correct calculation would be $100,000 - $4,000 = $96,000.

Qtopia Company Uses the Direct Method to Prepare Its Cash