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 has 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 can be calculated as the difference between the sale price and the cost of goods sold, which is $150,000 - $112,500 = $37,500. However, because the customer has not yet paid, there is no cash flow from this sale at year end. Therefore, the cash flow is -$112,500, which represents the cash outflow for the cost of goods sold.

A Firm Has Just Ended Its Calendar Year Making a Sale