An analysis of the annual financial statements of O’Connell Corporation reveals the following. The company had a $5 million loss from a fire that destroyed an uninsured factory building. Depreciation for the year amounted to $9 million. During the year, $2 million in cash was transferred from the company’s checking account into a money market fund. Accounts receivable from customers increased by $3.5 million over the year. Cash received from customers during the year amounted to $169 million. Prepaid expenses decreased by $1 million over the year. Dividends declared during the year amounted to $8 million; dividends paid during the year amounted to $6 million. Accounts payable (to suppliers of merchandise) increased by $2.7 million during the year. The liability for accrued income taxes payable amounted to $5 million at the beginning of the year and $3 million at year-end. In the computation of net cash flows from operating activities by the indirect method, explain whether each of these items should be added to net income, deducted from net income, or omitted from the computation. Briefly explain your reasons for each answe
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At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
An analysis of the annual financial statements of O’Connell Corporation reveals the following.
-
The company had a $5 million loss from a fire that destroyed an uninsured factory building.
-
Depreciation for the year amounted to $9 million. -
During the year, $2 million in cash was transferred from the company’s checking account into a
money market fund. -
Accounts receivable from customers increased by $3.5 million over the year. -
Cash received from customers during the year amounted to $169 million.
-
Prepaid expenses decreased by $1 million over the year.
-
Dividends declared during the year amounted to $8 million; dividends paid during the year amounted to $6 million.
-
Accounts payable (to suppliers of merchandise) increased by $2.7 million during the year.
-
The liability for accrued income taxes payable amounted to $5 million at the beginning of the year and $3 million at year-end.
In the computation of net
Under indirect method, the non- cash transactions are treated to find cash flow during the year.
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