Question

Bruno Incorporated recorded revenue of $3.82 million in the previous accounting period. In that same accounting period, they had a beginning balance of $647,000 and an ending balance of $583,000 in the Accounts Receivable account.
How should the cash flows from operating activities be adjusted to account for these items?

Answer 1

Answer:

The cash flows from operating activities would be adjusted by the addition of the cash collected from the customers which amounts to $3,884,000.

Explanation:

The movement in the accounts receivable balance at the start and end of an accounting period is due to cash payments, additional credit sales, and any amount written off during the period.

This may be expressed mathematically as  

opening balance + sales - cash collected - amount written off = closing balance

$647,000 + $3,820,000 - cash collected = $583,000

Cash collected = $647,000 + $3,820,000 - $583,000

= $3,884,000

Answer 2

Answer:

$64,000 increase in cash flows from operating activities

Explanation:

Using the indirect method, Bruno will only have to adjust for the change in Accounts Receivable, resulting in a $64,000 increase in cash flows from operating activities.