Question

What is the effect on net income, NRV, and cash flows from the collection of a credit sale?

1) Increase in net income, increase in NRV, increase in cash flows
2) Increase in net income, decrease in NRV, increase in cash flows
3) Decrease in net income, increase in NRV, increase in cash flows
4) Decrease in net income, decrease in NRV, increase in cash flows

Answer 1

The effect on net income, NRV, and cash flows from the collection of a credit sale is an increase in all three.

Step-by-step explanation:

The correct answer is Option 1) Increase in net income, increase in NRV, increase in cash flows.

When a credit sale is collected, it increases the company's net income because revenue from the sale is recognized. The Net Realizable Value (NRV) also increases as the collection decreases the accounts receivable balance, which represents the amount expected to be collected from customers.

The collection of a credit sale also increases cash flows because the company receives payment for the sale, which increases the cash balance.