Flowers Company purchased $4,000 of merchandise on account. Flowers sold the merchandise to a customer for $7,000 cash. What is the increase in gross margin and the net change in cash flow from operating activities as a result of these transactions?

Question

Quizplus · Accepted Answer

$7,000 Sales - $4,000 COGS = $3,000 Gross margin; The purchase was made on account, and does not affect cash flows until payment is made to the supplier. Therefore, the only effect on cash flows is the inflow from the customer of $7,000.

Flowers Company Purchased $4,000 of Merchandise on Account