The statement of cash flows can be presented using either the direct or the indirect methods. Using figures from the statement of profit or loss and the statement of financial position, cash received from sales can be calculated as the balancing figure on the trade receivables control account. Which one of the following is the correct method by which to calculate cash received from sales when using this approach?
A) Cash received from sales = sales - trade receivables brought forward + trade receivables carried forward.
B) Cash received from sales = sales + trade receivables brought forward - trade receivables carried forward.
C) Cash received from sales = sales + trade receivables brought forward + trade receivables carried forward.
D) Cash received from sales = sales - trade receivables brought forward -trade receivables carried forward.

Question

Quizplus · Accepted Answer

Cash received from sales is calculated by starting with sales, adding the opening balance of trade receivables (since this amount was not collected in the current period and thus needs to be added back to reflect total cash that should have been received), and then subtracting the closing balance of trade receivables (since this amount was not collected by the end of the period).

The Statement of Cash Flows Can Be Presented Using Either