The reason that we must adjust revenue for the change in trade receivables to convert the ﬁgure to cash collected from customers is that trade receivables represent sales revenue not collected from customers at the beginning and at the end of the accounting year.

Question

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Trade receivables represent unpaid sales revenue at the end of the accounting period. Therefore, to convert sales revenue to cash collected from customers, we must adjust revenue for the change in trade receivables.

The Reason That We Must Adjust Revenue for the Change