accounting_principles_12th_ed_by_weygandt

746 17 Statement of Cash Flows
To determine the amount of cash receipts, a company deducts from sales
revenue the increase in accounts receivable. On the other hand, there may be a
decrease in accounts receivable. That would occur if cash receipts from customers
exceeded sales revenue. In that case, a company adds to sales revenue the
decrease in accounts receivable. For Computer Services, accounts receivable
decreased $10,000. Thus, cash receipts from customers were $517,000, computed
as shown in Illustration 17A-3.
Illustration 17A-3
Computation of cash receipts
from customers
Sales revenue $ 507,000
Add: Decrease in accounts receivable 10,000
Cash receipts from customers $517,000
Computer Services can also determine cash receipts from customers from an
analysis of the Accounts Receivable account, as shown in Illustration 17A-4.
Illustration 17A-4
Analysis of accounts receivable
Helpful Hint
The T-account shows that
sales revenue plus decrease
in accounts receivable
equals cash receipts.
Accounts Receivable
1/1/17 Balance 30,000 Receipts from customers 517,000
Sales revenue 507,000
12/31/17 Balance 20,000
Illustration 17A-5 shows the relationships among cash receipts from customers,
sales revenue, and changes in accounts receivable.
Illustration 17A-5
Formula to compute cash
receipts from customers—
direct method
⎧
⎪
Cash Receipts
⎪ 1 Decrease in Accounts Receivable
⎪
Sales ⎪
⎨
from 5 ⎪
or
Revenue
⎪
⎪
⎪
Customers
⎩ 2 Increase in Accounts Receivable
CASH PAYMENTS TO SUPPLIERS Computer Services reported cost of goods sold
of $150,000 on its income statement. How much of that was cash payments to
suppliers? To answer that, it is first necessary to find purchases for the year. To
find purchases, a company adjusts cost of goods sold for the change in inventory.
When inventory increases during the year, purchases for the year have exceeded
cost of goods sold. As a result, to determine the amount of purchases, a company
adds to cost of goods sold the increase in inventory.
In 2017, Computer Services’ inventory increased $5,000. It computes purchases
as follows.
Illustration 17A-6
Computation of purchases
Cost of goods sold $ 150,000
Add: Increase in inventory 5,000
Purchases $155,000
Computer Services can also determine purchases from an analysis of the
Inventory account, as shown in Illustration 17A-7.
Illustration 17A-7
Analysis of inventory
Inventory
1/1/17 Balance 10,000 Cost of goods sold 150,000
Purchases 155,000
12/31/17 Balance 15,000