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 income statement 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. Therefore, the cash flow from operating activities would be $120,000 (net income) minus $5,000 (increase in accounts receivable), resulting in $115,000.

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