The following items were reported on the balance sheets and income statement for Online Co.: What amount would be reported in the operating activities section of Online's statement of cash flows for collections from customers under the direct method, assuming that all sales are on credit?
A) $ 975,000
B) $1,025,000
C) $1,225,000
D) $1,250,000

Question

The following items were reported on the balance sheets and income statement for Online Co.:  What amount would be reported in the operating activities section of Online's statement of cash flows for collections from customers under the direct method, assuming that all sales are on credit?
A) $ 975,000 
B) $1,025,000 
C) $1,225,000 
D) $1,250,000

Quizplus · Accepted Answer

To calculate the collections from customers under the direct method, we need to look at the change in accounts receivable from the beginning to the end of the period. From the balance sheet, we see that accounts receivable increased from $250,000 to $325,000, which means that $75,000 worth of sales were made on credit. Therefore, the amount reported in the operating activities section of the statement of cash flows would be $1,025,000 ($1,100,000 - $75,000).

The Following Items Were Reported on the Balance Sheets and Income