Under the direct method of preparing the statement of cash flows, to determine collections from customers:
A) ending accounts receivable is added to sales.
B) the net change in accounts receivable is added or subtracted from sales.
C) beginning accounts receivable is subtracted from sales.
D) beginning accounts receivable is added to sales.

Question

Quizplus · Accepted Answer

The net change in accounts receivable is added or subtracted from sales to determine the collections from customers using the direct method of preparing the statement of cash flows. This is because an increase in accounts receivable indicates that some sales have not been collected yet, while a decrease in accounts receivable means that more sales have been collected than in the previous period. By accounting for this change in accounts receivable, the statement of cash flows can accurately reflect the cash collected from customers during the period.

Under the Direct Method of Preparing the Statement of Cash