Chapter 6, Problem 21E

Interpreting tho Effects of Salos Declines and Changes In Rocoivablos on Cash Flow from Operations

Stride Rite Corporation manufactures and markets shoes under the brand names Stride Rite, Keds, and Sperry Top-Sider. Three recent years produced a combination of declining sales revenue and net income culminating in a net loss of $8,430,000). Each year, however, Stride Rite was able to report positive cash flows from operations. Contributing to that positive cash flow was the change in accounts receivable. The current and prior year balance sheets reported the following:

	(dollars in thousands) Current Year Previous Year
Accounts and notes receivable, less allowances	$48,066	$63,403

Required:

1. 1. On the current year’s cash flow statement (indirect method), how would the change in accounts receivable affect cash flow from operations? Explain why it would have this effect.
2. 2. Explain how declining sales rcsenue often leads to (a) declining accounts receivable and (b) cash collections from customers being higher than sales revenue.