During the year the balance in the Accounts Receivable account increased by $6,000.In order to adjust the company's net income to a cash basis using the direct method on the statement of cash flows, it would be necessary to:

A) subtract the $6,000 from the sales revenue reported on the income statement.
B) add the $6,000 to the sales revenue reported on the income statement.
C) subtract the $6,000 from the cost of goods sold reported on the income statement.
D) add the $6,000 to the cost of goods sold reported on the income statement.

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reeves wesley · Accepted Answer

Final Answer : A, Explanation :  The increase in Accounts Receivable indicates that sales have been made on credit but have not yet been collected in cash. To adjust net income to a cash basis using the direct method, the Accounts Receivable increase must be subtracted from sales revenue reported on the income statement. This adjustment will remove the sales made on credit and only include sales made in cash during the period.

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