If the direct method is used to prepare a statement of cash flows,credit sales may not automatically create a cash inflow because

Question

Quizplus · Accepted Answer

The direct method only records actual cash inflows and outflows, so credit sales may not automatically create a cash inflow because some receivables may be uncollectible or sales from the current period may be collected in a future period. Additionally, sales from a prior period may also be collected in the current period, which would not be reflected in credit sales alone.

If the Direct Method Is Used to Prepare a Statement