Question

During 2017, the accounts receivable balance of Dickerson Corp. increased. Which of the following statements is true?

a.
This indicates that Dickerson sold more than it collected in cash during the period.

b.
This increase is added to net income in the Operating Activities section of a statement of cash flows prepared under the indirect method.

c.
This increase is added to sales recognized on the income statement to determine the cash collections from customers during the period.

d.
This increase is considered only when the Operating Activities section of a statement of cash flows is prepared under the indirect method.

Answer 1

The correct statement is d. This increase is considered only when the Operating Activities section of a statement of cash flows is prepared under the indirect method.

Step-by-step explanation:

The correct statement is d. This increase is considered only when the Operating Activities section of a statement of cash flows is prepared under the indirect method. The money listed under assets on a bank balance sheet may not actually be in the bank because it often includes loans made to customers. Banks operate under the fractional reserve system, which allows them to lend out most of the deposits they receive, keeping only a fraction as reserves. Therefore, the cash represented on the asset side of a bank's balance sheet is often deployed in productive assets, such as loans, rather than being physically present in the bank's vault.