Question

Computing cash flow items—direct method Consider the following facts:

1. Beginning and ending Accounts Receivable are \(24,000 and \)20,000, respectively. Credit sales for the period total \(68,000.
2. Cost of goods sold is \)77,000.
3. Beginning Merchandise Inventory balance is \(29,000, and ending Merchandise Inventory balance is \)26,000.
4. Beginning and ending Accounts Payable are \(12,000 and \)16,000, respectively.

Requirements

1. Compute cash collections from customers.
2. Compute cash payments for merchandise inventory

Short answer

Requirement 1: Cash collection =$72,000

Requirement 2: Cash payment for merchandise inventory =$70,000

Step-by-step solution

Step-by-Step SolutionStep 1: Calculation of cash collections from customer

Cash Collection = Opening account receivable + Credit sales for the period – Closing account receivables

=$24,000+$68,000-$20,000

=$72,000

Computation of cash payments for merchandise inventory

Cash Payments for inventory = Cost of goods sold – Beginning merchandise inventory + Closing merchandise inventory + Beginning accounts payable – Closing accounts payable

=$77,000 – 29,000+ $26,000 + 12,000 – $16,000

=$70,000