Cash Flows: Cash Received from Customers and Paid to Suppliers
For the current year, a company reports cash received from customers of USD 1,000,000. Examination of the unearned revenue account indicates an increase of USD 125,000. Accounts receivable decreased by USD 225,000 during the year. What amount was _most likely_ reported for revenues?
Correct.
If accounts receivable decreased by USD 225,000, revenues reported would be less than cash received. Moreover, the increase of USD 125,000 in unearned revenues during the year indicates that cash was received for revenues not yet reported and should also be subtracted from the USD 1,000,000 to arrive at USD 650,000 in revenues reported.
$$\displaystyle 1{,}000{,}000- 225{,}000-125{,}000=650{,}000$$
Incorrect.
This answer does not consider the effect of the change in unearned revenue.
Incorrect.
The change in unearned revenues indicates cash was collected for revenues not reported, and the decrease in accounts receivable indicates cash was collected for revenues reported previously. So the correct answer should be less than the cash received from customers.
USD 650,000
USD 775,000
USD 1,100,000
