Avatar Company uses the direct method to prepare its statement of cash flows. Please refer to the following information reported for the year 2014:
$\begin{array}{lr}
\text { Sales revenue: } & \$ 240,000 \
\text { Accounts receivable beginning balance: } & \$ 35,000 \
\text { Accounts receivable ending balance: } & \$ 31,000
\end{array}$
In the operating activity section of the statement of cash flows, what amount would be shown for collections from customers?
A) $244,000
B) $236,000
C) $240,000
D) $258,000

Question

Quizplus · Accepted Answer

To calculate collections from customers using the direct method, you start with sales revenue and adjust it based on the change in accounts receivable. Here, accounts receivable decreased by $4,000 ($35,000 - $31,000), indicating that cash collections were higher than sales revenue. Therefore, the collections from customers would be $240,000 (sales revenue) + $4,000 (decrease in accounts receivable) = $244,000.

Avatar Company Uses the Direct Method to Prepare Its Statement