The following information was taken from the current year finanical statements of Planet Corp.:

Accounts receivable, January 1 $ 21,600
Accounts receivable, December 31 30,400
Sales on account and cash sales 438,000
Uncollectible accounts 1,000

No accounts receivable were written off or recovered during the year. If the direct method is used in the current year cash flows, Planet should report cash collected from customers as

A. $447,800
B. $446,800
C.$429,200
D.$428,200

The answer is $429,200.

Explanation: What you need to do is to simply prepare a movement schedule of the transactions given in the question, as follows:

Accounts receivable - opening balance           $21,600

Cash sales during the year (addition)            $438,000

Cash collections                                                  

Accounts receivable - ending balance           $30,400

To find the cash collection, simply $21,600 + $438,000 - = $30,400

$459,600 - = $30,400

= $459,600 - $30,400

= $429,200

Note that if it is indirect cash flows method, the uncollectible account would have been considered as non-cash item and added back to net income.

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