Trade receivables arising from sales to customers amounted to $35,000 and $40,000 at the beginning and end of the year, respectively. Profit reported on the income statement for the year was $120,000. Exclusive of the effect of other adjustments, the cash flows from operating activities, prepared using the indirect method, is
A) $155,000.
B) $125,000.
C) $120,000.
D) $115,000.

Question

Quizplus · Accepted Answer

The increase in trade receivables of $5,000 ($40,000 - $35,000) indicates that not all sales were collected in cash, so this amount is subtracted from the net income to calculate cash flows from operating activities, resulting in $115,000 ($120,000 - $5,000).

Trade Receivables Arising from Sales to Customers Amounted to $35,000