During the year the balance in the Accounts Receivable account increased by $6,000. In order to adjust the company's net income to a cash basis using the direct method on the statement of cash flows, it would be necessary to:

A) subtract the $6,000 from the sales revenue reported on the income statement.
B) add the $6,000 to the sales revenue reported on the income statement.
C) subtract the $6,000 from the cost of goods sold reported on the income statement.
D) add the $6,000 to the cost of goods sold reported on the income statement.

Question

Bhawna Bhutani · Accepted Answer

Final Answer : A, Explanation :  The increase in Accounts Receivable indicates that some of the sales revenue has not been collected in cash yet. To adjust the net income to a cash basis, we need to remove the effect of this increase in Accounts Receivable by subtracting it from the sales revenue reported on the income statement. This adjustment will give us the cash sales revenue for the year.

Definitions

Learning Objectives

Learning Objectives

Related questions