Final answer:
When accounts receivable are collected, net income is increased. Accounts receivable represent the amount of money owed to a company by its customers for goods or services delivered on credit. When these accounts are collected, it means that customers have paid off their debts, resulting in an increase in the company's cash flow.
Step-by-step explanation:
When accounts receivable are collected, net income is increased. Accounts receivable represent the amount of money owed to a company by its customers for goods or services delivered on credit. When these accounts are collected, it means that customers have paid off their debts, resulting in an increase in the company's cash flow.
For example, let's say a company has $10,000 in accounts receivable, and all of these are collected. This means that $10,000 is added to the company's cash balance, which in turn increases its net income.
On the other hand, if the accounts receivable are not collected, it means that customers have not paid their debts, resulting in a decrease in the company's cash flow and a potential decrease in net income.