Question

Georgia Corp. uses the indirect method to prepare the statement of cash flows. Refer to the following section of the comparative balance​ sheet:Georgia Corp.Comparative Balance SheetDecember​ 31, 2025 and 202420252024​Increase/ (Decrease)Cash​$45,000​$27,000​$18,000Accounts Receivable​48,000​45,000​3,000Merchandise Inventory​180,000​132,000​48,000Total Assets​$273,000​$204,000​$69,000How will the change in Accounts Receivable be shown on the statement of cash​ flows?A.negative cash flow under the investing activities sectionB.positive cash flow under the financing activities sectionC.subtraction from net income under the operating activities sectionD.addition to net income under the operating activities section

Answer 1

The change in Accounts Receivable will be shown on the statement of cash​ flows as:

C. Subtraction from net income under the operating activities section.

Net income is calculated by deducting from total revenue the cost of sales, operational expenses, depreciation, interest, amortization, and taxes.

Change in Accounts Receivable:-  

Accounts Receivable  

           In 2019                                 $ 48,000  

           In 2018                                 $ 45,000  

Increase in Current Assets              $ 3,000  

This implies Cash outflow from Operating Activities.

Thus it should be subtracted from Net Income under the Operating Activities section.

Net income is a company's profit for a given period, whereas cash flow from operating activities measures the cash that comes in and goes out during a company's day-to-day operations. Net income is used to calculate cash flow from operating activities. However, both are important in determining a company's financial health.

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