Assume zero opening balances for all balance sheet accounts. $\bullet$Credit sales of $100 000, of which $80 000 was received at year end
$\bullet$Paid wages of $40 000
$\bullet$Depreciation expenses was $8 000
Net profit and cash flow from operations are respectively:
A) $32 000 and $40 000
B) $52 000 and $32 000
C) $52 000 and $40 000
D) None of the above

Question

Quizplus · Accepted Answer

- Credit sales of $100,000 means that revenue of $100,000 was recognized.
- $80,000 received at year end means that $20,000 was still outstanding and would be recorded as Accounts Receivable on the balance sheet.
- Paid wages of $40,000 means that the expense was recognized and recorded on the income statement.
- Depreciation expense of $8,000 means that the expense was recognized and recorded on the income statement.
 
To calculate net profit, we need to subtract the total expenses (wages and depreciation) from revenue:

Net Profit = Revenue - Expenses 
Net Profit = $100,000 - ($40,000 + $8,000) 
Net Profit = $52,000

To calculate cash flow from operations, we need to start with net profit and adjust for non-cash expenses (such as depreciation) and changes in working capital (such as the increase in Accounts Receivable):

Cash Flow from Operations = Net Profit + Non-Cash Expenses - Changes in Working Capital 
Cash Flow from Operations = $52,000 + $8,000 - $20,000 
Cash Flow from Operations = $40,000

Therefore, the correct answer is C) $52,000 and $40,000.

Assume Zero Opening Balances for All Balance Sheet Accounts ∙\bullet∙ Credit Sales of $100 000, of Which $80 000 Was

Assume Zero Opening Balances for All Balance Sheet Accounts $\bullet$ Credit Sales of $100 000, of Which $80 000 Was