Hong Kong Clothiers reported revenue of $5,000,000 for its year ended December 31, 2009. Accounts receivable at December 31, 2008 and 2009, were $320,000 and $355,000, respectively. Using the direct method for reporting cash flows from operating activities, Hong Kong Clothiers would report cash collected from customers of:
A)$4,965,000.
B)$5,000,000.
C)$5,035,000.
D)$5,045,000.Cash collections = $320,000 + 5,000,000 355,000 = $4,965,000

Question

Quizplus · Accepted Answer

The direct method for reporting cash flows from operating activities requires adjusting the net income for non-cash items and changes in working capital accounts, including accounts receivable. To calculate cash collected from customers, we need to add the increase in accounts receivable to the revenue reported. Therefore, the cash collected from customers for the year ended December 31, 2009, would be $4,965,000 ($5,000,000 - $320,000 + $355,000).

Hong Kong Clothiers Reported Revenue of $5,000,000 for Its Year