A company reported an increase in accounts receivable and an increase in unearned sales revenues during 2016. Which of the following statements is correct?
A)Cash collected from customers equals sales revenues plus both the increase in accounts receivable and the increase in unearned sales revenues.
B)Cash collected from customers equals sales revenues minus both the increase in accounts receivable and the increase in unearned sales revenues.
C)Cash collected from customers equals sales revenues plus the increase in accounts receivable, minus the increase in unearned sales revenues.
D)Cash collected from customers equals sales revenues minus the increase in accounts receivable, plus the increase in unearned sales revenues.

Question

Quizplus · Accepted Answer

An increase in accounts receivable implies that sales have been made on credit and payment is expected in the future. Therefore, the amount of sales revenue reported for the year would be higher than the cash collected from customers. To calculate the cash collected from customers, we need to subtract the increase in accounts receivable from the reported sales revenue. On the other hand, an increase in unearned sales revenue implies that the company has received cash in advance for goods or services that will be delivered in the future. Therefore, the amount of cash collected from customers would be higher than the sales revenue reported for the year. To calculate the cash collected from customers, we need to add the increase in unearned sales revenue to the reported sales revenue. Therefore, the correct formula would be: Cash collected from customers = Sales revenues - Increase in accounts receivable + Increase in unearned sales revenues.

A Company Reported an Increase in Accounts Receivable and an Increase