Question

If a company uses the indirect method to depict cash flows, where, if at all, would accounts receivable collected be classified on the statement of cash flows?

A) Financing activities section
B) Noncash activities
C) Operating activities section
D) Investing activities section

Answer 1

Accounts receivable collected using the indirect method is classified in the operating activities section of the statement of cash flows because it represents cash inflows from business operations. The correct option is a.

Step-by-step explanation:

If a company uses the indirect method to depict cash flows, accounts receivable collected would be classified in the operating activities section of the statement of cash flows. This section reflects the cash transactions related to the day-to-day operations of a business. Accounts receivable collection represents inflows of cash from customers paying off their credit purchases, which is a fundamental aspect of business operations. Hence, it is included in the operating activities.

If a company uses the indirect method to depict cash flows, accounts receivable collected would be classified in the operating activities section of the statement.

The operating activities section represents the cash flows that are directly related to the company's core operations, such as revenue generation. Accounts receivable collected is considered a cash inflow and is included in this section because it reflects the cash generated from the sales of goods or services.