Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 13 Statement of Cash Flows 593

For Rundell Inc., the cash received from customers is $1,171,000, as shown below.

Sales $1,180,000

Less increase in accounts receivable 9,000

Cash received from customers $1,171,000

The additions to accounts receivablefor sales on account during the year were $9,000

more than the amounts collected from customers on account. Sales reported on the in-

come statement therefore included $9,000 that did not result in a cash inflow during

the year. In other words, the increase of $9,000 in accounts receivable during 2007 in-

dicates that sales on account exceeded cash received from customers by $9,000. Thus,

$9,000 is deducted from sales to determine the cash received from customers. The

$1,171,000 of cash received from customers is reported in the cash flows from operat-

ing activities section of the cash flow statement.

Cash Payments for Merchandise

The $790,000 of cost of merchandise sold is reported on the income statement

for Rundell Inc., using the accrual method. The adjustments necessary to convert

the cost of merchandise sold to cash payments for merchandise during 2007 are

summarized below.

Cash received

 Decrease in accounts receivable from customers

or

Sales (reported

on the income

statement)

 Increase in accounts receivable



Cash payments

for merchandise

 Increase in inventories

or

Cost of

merchandise sold

(reported on

the income

statement)

 Decrease in inventories

 Decrease in accounts payable

or

 Increase in accounts payable

AND



Q.Sales reported on the
income statement were
$350,000. The accounts
receivable balance de-
clined $8,000 over the
year. What was the
amount of cash received
from customers?

A.$358,000
($350,000 + $8,000)

The adjustment necessary to convert the sales reported on the income statement to the

cash received from customers is summarized below.