The reason that we must adjust revenue for the change in trade receivables to convert the figure to cash collected from customers is that trade receivables represent sales revenue not collected from customers at the beginning and end of the accounting year.

Question

Quizplus · Accepted Answer

Trade receivables represent credit sales that have not been collected by the end of the accounting period. Thus, in order to convert revenue to cash collected from customers, we need to adjust for the change in trade receivables.

The Reason That We Must Adjust Revenue for the Change