Question

g The balance in Accounts Receivable at the beginning of the year amounted to $16,000. During the year, $64,000 of credit sales were made to customers. If the ending balance in Accounts Receivable amounted to $10,000, and uncollectible accounts expense amounted to $4,000, what is the amount of cash inflow from customers that would appear in the operating activities section of the cash flow statement

Answer 1

Answer:

$74,000.

Explanation:

Operating activities are those activities that are linked to the provision of goods and services. These activities are performed to conduct the core operations of the business. Operating activities earn revenue and generate profits for the entity, so transactions related to Non-current assets, Liabilities, and Equity are excluded from operating activities.

While preparing a cash flow statement under indirect method, the opening and closing balances of Accounts receivable are compared to determine the cash inflow/outflow. The opening balance of receivable is $16,000. During the period, $64,000 of credit sales were made. This will increase the balance of receivable to $80,000. The ledger of receivable reveals that the ending balance is $10,000, this means that the receivables decrease by $70,000 during the period. A decrease in receivable is a cash inflow. But it should be noted here that balances provided are stated at NRV (Net Realizable Value), it means that these balances include the effect of bad debts. We have to remove this effect because bad debt (uncollectible accounts expense) is a non-cash expense, it is just the estimation of management and the requirement of prudence concept. This amount should be added back to in-flows, and the resultant value will be $74,000.

Calculation

16,000 + 64,000 - 10,000 + 4,000 = $74,000.

Answer 2

Answer:

the amount of cash inflow from customers that would appear in the operating activities section of the cash flow statement is $66,000

Explanation:

The cash inflow from customers is presented on the face of Cash Flow Statement using the Direct Method.

Cash  inflow from customers is calculated by opening a Total Accounts Receivables - T Account as follows:

Debits :

Beginning Balance             $16,000

Sales                                    $64,000

Totals                                  $80,000

Credits :

Uncollectible Expense        $4,000

Closing Balance                 $10,000

Cash (Balancing figure)      $66,000

Totals                                  $80,000

The Balancing figure represents the cash payment received from customers.