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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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When using the direct method, which items usually constitute the largest components of cash inflows from operating activities?

To determine

Introduction:

The direct method helps us to record cash flows from operating activities. Cash flows arise from collections from the customers and cash payments to suppliers, employees and others. The direct method also reports cash outflows for income tax and interest paid.

To state: The item that constitutes the largest part of cash flows from operating activities according to direct method.

Explanation

Sales includes two types of sales and those are cash sales and credit sales. Incase all sales are cash sales, the cash collected from customers equals total sales. However, if sales are made on credit, the amount of cash that will be collected during a period is determined by scrutinizing the Sales and Accounts Receivable accounts...

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