Canada On credit vs Account Receivables


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Hi dear ones,

I am studying accounting fundamentals for curiosity and I have two questions that are highlighted on the spreadsheet.

What is the difference between "on credit" and "account receivables"?
Why A/R is included in the cash flow, if only cash flow includes only cash received or paid?

Thank you.




Period 1
Cash purchases
250​
Cash sales
370​
Cash expenses
40​
Depreciation
55​
There was no inventory at the year end.
Income statementCash Flow - DirectCash Flow - Indirect
Revenue
370​
Cash from sales
370​
Net income
25​
Purchases
(250)​
Cash on purchases
(250)​
Expenses
(40)​
Cash expenses
(40)​
Depreciation
(55)​
+ Depreciation
55​
Net income25Change in cash80Change in cash80
Period 2
Cash purchases
280​
Cash sales
300​
Sales on credit
170​
What is the difference between on credit and account receivables?
Cash expenses
50​
Receipts from receivables
140​
Depreciation
55​
Again, there was no inventory at the year end.
Why A/R is included in the cash flow, if only cash flow includes only cash received or paid?
Income statementCash Flow - DirectCash Flow - Indirect
Revenue
470​
Cash from sales
440
Net income
85​
Purchases
(280)​
Cash on purchases
(280)​
- Increase in A/R
(30)​
Expenses
(50)​
Cash expenses
(50)​
Depreciation
(55)​
+ Depreciation
55​
Net income85Change in cash
110​
Change in cash
110​
 
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kirby

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A sale on credit is an Income Statement item. Since no cash is collected, the sale on credit creates an Account Receivable.

The Cash Flow statement mentions Accounts Receivable because it includes the changes in accounts receivable assumed to be caused by cash activity.
 

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