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 Sheet
December 31, 2019 and 2018
2019 2018 Increase/(Decrease)
Cash $45,000 $27,000 $18,000
Accounts Receivable 48,000 45,000 3,000
Merchandise Inventory 180,000 132,000 48,000
Total Assets $273,000 $204,000 $69,000
How will the change in Accounts Receivable be shown on the statement of cash flows?
A) subtraction from net income under the operating activities section
B) positive cash flow under the financing activities section
C) negative cash flow under the investing activities section
D) addition to net income under the operating activities section

Answer 1

A) subtraction from net income under the operating activities section

Step-by-step explanation:

Under the indirect method to determinate the cashflow from operating activities we reconcile the net income with the change in the net working capital.

The working capital is the current assets and current liabilities.

For this case, the account receivable account, increase to 48,000 from 45,000

This increase means, less sales were collected, so cash "outflow" as the cash from sale is not being converted into cash. It could also be understand as the company use 3,000 in financing their customers. This also is seeing as a decrease in cash flow.