CMA Intermediate · Financial Management and Business Data Analytics · Cash Flow Statement - Preparation and Analysis
Under the direct method, Narmada Retail Ltd. has sales of ₹12,00,000, opening trade receivables ₹90,000 and closing trade receivables ₹1,10,000. All sales are on credit. Cash received from customers is:
Cash received from customers is ₹11,80,000. Credit sales of ₹12,00,000 are reduced by the ₹20,000 rise in receivables, since that amount was sold but not yet collected. Adding the increase would wrongly overstate collections.
- A₹12,20,000
- B₹11,80,000Correct
- C₹12,00,000
- D₹10,90,000
Explanation
Cash collected = Sales - increase in receivables = 12,00,000 - 20,000 = 11,80,000. Adding the increase (12,20,000) is the wrong-sign error.
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