Homework Answers
Solution:
(1) When a company completed a job that is billed at $ 20,000 then it means the company recorded revenue on the account. Hence, here Net Income will increase because revenue will increase i.e. it is already recorded and accounts receivables of the company will also increase. But when we look into the effect of an increase of accounts receivables on cash flow from operating activities, there will be no effect.
Hence the solution for this sub-part will be option A i.e. Net Income will increase and there will be no effect on Cash flow from operating activities.
(2) Computation of cash collected from accounts receivables during the period:
Cash Collected from accounts receivables during the period = Opening Balance + revenue on accounts during the period – Closing balance
Cash Collection = $ 12,000 + $ 54,000 - $ 20,000
= $ 46,000
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