During the current year, the accounts receivable balance increased.
A)This indicates that credit sales exceeded collections on account during the period.
B)This increase is added to net income in the operating activities section of a statement of cash flows prepared under the indirect method.
C)This increase is added to credit sales to determine the collections on account during the period.
D)This indicates that there were no cash sales during the period.

Question

Quizplus · Accepted Answer

An increase in accounts receivable indicates that more sales were made on credit and not all the payments have been collected yet. Thus, credit sales exceeded collections on account during the period. Option B is incorrect because an increase in accounts receivable is added to net income in the operating activities section of the statement of cash flows prepared under the indirect method to adjust for non-cash transactions, but it is not directly added to net income as revenue. Option C is incorrect because the increase in accounts receivable cannot be added to credit sales to determine collections on account; the accounts receivable balance is already a result of credit sales during the period. Option D is incorrect because an increase in accounts receivable does not indicate that there were no cash sales during the period.

During the Current Year, the Accounts Receivable Balance Increased