Cash Flows: Cash Received from Customers and Paid to Suppliers
During the current year, a company reported net income of USD 200,000 after deducting cash expenses of USD 165,000 from sales revenues. Accounts receivable decreased by USD 15,000 during the year. How much cash will the company _most likely_ collect from customers during the year?
Incorrect.
This answer incorrectly subtracts expenses from net income, but net income already has expenses subtracted. Expenses of USD 165,000 should be added to net income to compute sales revenues of USD 365,000. Then the change in accounts receivable can be considered to determine cash collections.
Incorrect.
The USD 200,000 is net income, which does not represent cash collections. First, compute sales revenue by adding USD 165,000 expenses to net income. Then consider how the change in accounts receivable would impact cash collections.
Correct.
The total sales revenue would be USD 365,000.
$$\displaystyle \mbox{Net Income} + \mbox{Expenses} = 200{,}000 + 165{,}000$$
And if accounts receivable decreased, then the entire USD 365,000 plus another USD 15,000 in cash was collected from customers during the year.
USD 50,000
USD 215,000
USD 380,000
