This would mean that some of the cost of goods sold came from existing stock on hand rather than having all been purchased during the year. But, the amount of inventory actually purchased will be less than this amount if inventory on the balance sheet decreased. Bear in mind that cost of goods sold is the dollar amount of inventory sold. If net receivables had decreased, cash collected would have exceeded sales.Įmerson paid $1,050,000 of cash for inventory. Thus, cash received from customers was $3,000,000. This means that of the total sales of $3,250,000, a net $250,000 went uncollected.
CASH FLOW FROM OPERATIONS EXAMPLE PLUS
On the other hand, one can infer this amount by reference to sales and receivables data found on the income statement and balance sheet: Cash Received From Customers = Total Sales Minus the Increase in Net Receivables (or, plus a decrease in net receivables) = $3,250,000 – ($850,000 – $600,000) = $3,000,000Īccounts receivable increased by $250,000 during the year ($850,000 – $600,000). Emerson’s information system could be sufficiently robust that a “database query” could produce this number. Chapter 24: Analytics for Managerial Decision MakingĮmerson’s customers paid $3,000,000 in cash.Chapter 23: Reporting to Support Managerial Decisions.Chapter 22: Tools for Enterprise Performance Evaluation.Chapter 21: Budgeting – Planning for Success.Chapter 20: Process Costing and Activity-Based Costing.Chapter 19: Job Costing and Modern Cost Management Systems.Chapter 18: Cost-Volume-Profit and Business Scalability.Chapter 17: Introduction to Managerial Accounting.Chapter 16: Financial Analysis and the Statement of Cash Flows.
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