Under the direct method of preparing the statement of cash flows, to determine collections from customers:
A)beginning accounts receivable is subtracted from sales.
B)ending accounts receivable is added to sales.
C)the net change in accounts receivable is added or subtracted from sales.
D)none of the above is true.

Question

Quizplus · Accepted Answer

The net change in accounts receivable is used to determine collections from customers under the direct method. This means that if accounts receivable increases during the period, it indicates that customers have not yet paid for their purchases and should be subtracted from sales to determine cash collections. Conversely, if accounts receivable decreases during the period, it suggests that customers have paid for some of their purchases, which should be added to sales to determine cash collections. Beginning and ending accounts receivable are used in the indirect method of preparing the statement of cash flows.

Under the Direct Method of Preparing the Statement of Cash