Final answer:
The difference between revenues reported on the income statement and cash collected from customers in the direct method of the cash flow statement is reconciled by the accounts receivable account. This account indicates the credit sales that are yet to be converted into cash, affecting the cash collected during the period.
Step-by-step explanation:
Cash Flow Statement:
The accounts receivable balance sheet account will explain the difference between revenues on the income statement and cash collected from customers when using the direct method for the operating activities section of the statement of cash flows. This is because the accounts receivable reflects the credit sales that have been made but not yet collected in cash. When a company makes a sale on credit, it records revenue on the income statement. However, this does not mean that cash has been received.
Instead, there is an increase in accounts receivable on the balance sheet. As these receivables are collected in cash, the accounts receivable balance decreases. The cash flow statement adjusts for this by adding or subtracting the changes in accounts receivable to reconcile the total revenue with the actual cash collected. If the accounts receivable balance decreases, this indicates that more cash has been collected than the revenue recognized, and hence, the decrease is added back to the net income on the cash flow statement.