Accounts receivable arising from sales to customers amounted to $35,000 and $40,000 at the beginning and end of the year, respectively.Net income reported on the statement of income for the year was $120,000.Ignoring the effect of any other adjustments, the cash flow provided (used) by operating activities, prepared using the indirect method, is
A)$120,000.
B)$125,000.
C)$155,000.
D)$115,000.

Question

Quizplus · Accepted Answer

The increase in accounts receivable of $5,000 ($40,000 - $35,000) indicates that not all sales were collected in cash, so this amount should be subtracted from the net income to calculate cash flow from operating activities. Therefore, $120,000 - $5,000 = $115,000.

Accounts Receivable Arising from Sales to Customers Amounted to $35,000