Financial Reporting and Analysis
Chapter 4 Solutions
Structure of the Balance Sheet and Statement of Cash Flows
Exercises
Exercises
E4-1. Determining collections on account
(AICPA adapted)
Cash receipts from sales include cash sales plus collections on account computed as follows:
Cash sales
Beginning accounts receivable
Credit sales
Less: Ending accounts receivable
Total Cash receipts from sales

$ 200,000
400,000
3,000,000
__(485,000)
$3,115,000

Alternative Solution: T-account analysis of accounts receivable
Beginning balance
Sales on account
Ending balance

Accounts Receivable
$ 400,000
X
Collections on account
3,000,000
$ 485,000

$485,000 = $400,000 + $3,000,000 – X
X = $2,915,000
Total cash receipts from sales:
Cash sales
Collections on accounts receivable
Total cash collected on sales

$ 200,000
_2,915,000
$3,115,000

E4-2. Determining cash from operations
(AICPA adapted)
Cash flows from operations:
Cash received from customers
Rent received
Taxes paid
Cash paid to employees and suppliers
Cash flows from operations

$870,000
10,000
(110,000)
(510,000)
$260,000

Notice that cash dividends paid arises from the issuance of stock, a financing activity, and thus is not included in cash flows from operations.

4-1

E4-3. Determining cash collections on account
(AICPA adapted)
The provision for bad debts and write-off for uncollectible credit sales are non-cash expenses so they do not enter into the computation of cash receipts. To compute cash receipts, we need only sum the cash collected in May, as follows:
Collections of May credit sales (est.) 20% of $200,000 =
Collections of April credit sales (est.) 70% of $150,000 =
Collections of pre-April credit sales
Total cash receipts from accounts receivable in May

$ 40,000
105,000
12,000
$157,000

E4-4. Determining ending accounts