On December 31, 2009, Tiras Company reported net income of $50,000 and sales of $200,000. The company also reported beginning and ending accounts receivable at $20,000 and $25,000, respectively. Tiras will report cash collected from customers in its 2009 statement of cash flows (indirect method) in the amount of:

Question

Quizplus · Accepted Answer

When using the indirect method, the change in accounts receivable is used to calculate cash collected from customers. In this case, accounts receivable increased by $5,000 ($25,000 ending balance - $20,000 beginning balance). Since an increase in accounts receivable means that sales were made but the cash was not collected yet, the $5,000 increase in accounts receivable must be subtracted from net income to arrive at cash collected from customers. Therefore, the calculation is: $50,000 (net income) - $5,000 (increase in accounts receivable) = $45,000. However, this is not the correct answer choice given, as it is not an option. The correct answer is A, as cash collected from customers is not calculated or reported when using the indirect method.

On December 31, 2009, Tiras Company Reported Net Income of $50,000