CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows I
Dalton Corp reported revenue of 900 for the year. Accounts receivable rose from 120 to 150, and unearned revenue (a liability for cash received in advance) fell from 60 to 40. Cash collected from customers is closest to:
Cash collected from customers is about 850. Start with revenue of 900, subtract the 30 increase in receivables because those sales are uncollected, and subtract the 20 decrease in unearned revenue because earlier advance cash was already received and is recognized now.
- A850Correct
- B870
- C950
Explanation
Cash collected = revenue - increase in receivables - decrease in unearned revenue = 900 - 30 - 20 = 850. Using only the receivable change gives 870 (ignores the unearned revenue decline). Treating the unearned revenue decline as an addition gives 950 (900 - 30 + 20 + 60 is not valid; sign errors give higher values).
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