Thomas Book sales, INC., supplies tesxtbooks to college and university bookstore

Question

Thomas Book sales, INC., supplies tesxtbooks to college and university bookstores. The books are shipped with a proviso that they must be paid for within 30 days but can return for a full refund credit in 90 days. In 2009, the company 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 accural accounting and the preceding values, show the firms net profit for the past year. B. Using cash accounting and the preceding values, show the firms net cash flow for the past year. C. Which of these statements is more useful to the financial manager. Why?

Explanation / Answer

a.Net profit =Sales-cost of goods sold
=760,000-300,000
=TK.460,000

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b.Net Cash flow =Cash receipts-Cost of goods sold
=6,90,000-3,00,000
=3,90,000

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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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