Martinez Installations Company uses the direct method to prepare its statement of cash flows.It has reported Sales Revenues of $200,000 on its income statement for the year 2015.If the balance in Accounts Receivable has gone up by $10,000 during the year,then $10,000 will have to be added to $200,000 to calculate collections from customers.

Question

Quizplus · Accepted Answer

The direct method starts with cash received from customers and deducts cash paid for operating expenses, so the change in Accounts Receivable during the year would not be added to Sales Revenues. Instead, it would be factored into the calculation of cash collected from customers. Therefore, the statement in the question is incorrect.

Martinez Installations Company Uses the Direct Method to Prepare Its