Question

. Here is some information for Miller Company:

Accounts receivable, December 31, 2019
$ 60,000
Accounts receivable, December 31, 2020
90,000
Sales—2020
800,000
How would the change in accounts receivable be reported in the Operating Activities section of the statement of cash flows under the indirect method?

a.
As an addition to sales

b.
As a deduction from sales

c.
As an addition to net income

d.
As a deduction from net income

Answer 1

The increase in accounts receivable for Miller Company is reported as a deduction from net income on the cash flow statement under the indirect method, as it signifies earned revenue not yet received in cash.

Step-by-step explanation:

The change in accounts receivable for Miller Company would be reported as a deduction from net income in the Operating Activities section of the statement of cash flows under the indirect method. This is because the increase in accounts receivable represents sales made on credit that have not yet been collected in cash. As such, even though sales have increased, the cash has not been received, and thus, an increase in accounts receivable is subtracted from net income in order to reconcile it to net cash provided by operating activities.