Question

Sales for the year were $600,000. Accounts receivable were $100,000 and $80,000 at the beginning and end of the year. Cash received from customers to be reported on the cash flow statement using the direct method is?

Answer 1

The cash received from customers is calculated by adjusting yearly sales by the decrease in accounts receivable, resulting in $620,000 to be reported on the cash flow statement using the direct method.

Step-by-step explanation:

The question is about calculating the cash received from customers to be reported on the cash flow statement using the direct method. This involves adjusting sales for the changes in accounts receivable over the year. The formula to calculate this is:

Cash Received from Customers = Sales - Increase in Accounts Receivable

Sales for the year are given as $600,000. Accounts receivable at the beginning of the year were $100,000, and $80,000 at the end of the year, signifying a decrease in accounts receivable by $20,000 ($100,000 - $80,000). Therefore, the cash received from customers is $600,000 - (-$20,000) or $600,000 + $20,000.

Cash Received from Customers = $600,000 + $20,000 = $620,000.

The firm's accounting profit can be calculated by subtracting the total explicit costs from the total revenue. In this case, the total revenue is $1 million and the explicit costs are $600,000 + $150,000 + $200,000 = $950,000. Therefore, the accounting profit is $1 million - $950,000 = $50,000.