Last year Lawsby Company reported sales of $120,000 on its income statement.During the year,accounts receivable increased by $10,000 and accounts payable increased by $15,000.The company uses the direct method to determine the net cash provided by operating activities on the statement of cash flows.The sales revenue adjusted to a cash basis for the year would be:
A)$105,000
B)$125,000
C)$110,000
D)$115,000

Question

Quizplus · Accepted Answer

The direct method starts with the revenue earned and then adjusts for changes in related balance sheet accounts to determine cash received. In this case, to adjust sales revenue to a cash basis, the increase in accounts receivable (which represents sales made but not yet collected) would be subtracted, and the increase in accounts payable (which represents expenses incurred but not yet paid) would be added. Therefore, the calculation would be: 
Sales revenue + Decrease in accounts receivable - Increase in accounts payable = 
$120,000 + (-$10,000) + $15,000 = $110,000.

Last Year Lawsby Company Reported Sales of $120,000 on Its