Accrual income versus cash flow for a period Thomas Book Sales, Inc., supplies t

Question

Accrual income versus cash flow for a period Thomas Book Sales, Inc., supplies textbooks to college and university bookstores. The books are shipped with a provision that they must be paid for within 30 days but can be returned for a full refund credit within 90 days. In 2006, Thomas shipped and billed book titles totaling $760,000. Collections, net of return credits, during the year totaled $690,000. The company spent $300,000 acquiring the books that it shipped.

a. Using accrual accounting and the preceding values, show the firm

Explanation / Answer

Solution a.Net profit =Sales-cost of goods sold =760,000-300,000 =TK.460,000 b.Net Cash flow =Cash receipts-Cost of goods sold =6,90,000-3,00,000 =3,90,000 c.The cash flow statement is more useful to financial manager The accounting net income includes amounts that will not be collected and as a results,do not contribute to the wealth of the owners.

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