Accrual income versus cash flow for a period. Thomas Book Sales, Inc., supplies
ID: 2814177 • Letter: A
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 proviso that they must be paid for within 30 days but can be returned for a full refund credit within 90 days. In 2014, Thomas shipped and billed book titles totaling $630,000 Collections, net of return credits, during the year totaled $568,927 The company spent $253,984 acquiring the books that it shipped.
a.Using accrual accounting and the preceding values, show the firm's net profit for the past year.
b. Using cash accounting and the preceding values, show the firm's net cash flow for the past year.
c. Which of these statements is more useful to the financial manager? Why?
a.Using accrual accounting and the preceding values, show the firm's net profit for the past year in the following table. (Round to the nearest dollar.)
Accounting View
(accrual basis)
Thomas Book Sales, Inc.
Income Statement
for the Year Ended 12/31
Sales revenue
Accounting View
(accrual basis)
Thomas Book Sales, Inc.
Income Statement
for the Year Ended 12/31
Sales revenue
Explanation / Answer
Sales $ 630,000 Collection $ 568,927 Expenses $ 253,984 Answer A) Under accrual accounting i Sales $ 630,000 ii Less : Expenses $ (253,984) iii=i-ii Net profit $ 376,016 Answer B) Cash flow computation i Cash from sales $ 568,927 ii Less : Cash expenses $ (253,984) iii=i-ii Net cash flow $ 314,943 Answer C) For accounting purpose accrual method is more appropriate as its provide better operational performance details for the firm. Accruals take in account full sales value and full cost value even if actual collection and ectuals cash out flow has not made