# Calculation cash collections in direct method

I’m currently attempting the Qbank questions based on book 3. This is the question i’m attempting: Murray Company reported the following revenues and expenses for the year ended 2007: Sales revenue: \$200,000 Wage expense: 89,000 Insurance expense: 17,000 Interest expense: 10,400 Depreciation expense: 50,000 Following are the related balance sheet accounts Unearned revenue 2007: \$15,600 2006: \$13,200 Wages payable 2007:5,400 2006:6,600 Prepaid insurance 2007:1,200 2006:0 Interest payable 2007:500 2006:1,600 Accumulated depreciation 2007:95,000 2006:45,000 Cash collections Cash Expenses A) \$202,400 \$119,900 B) \$202,400 \$58,100 C) \$197,600 \$119,900 I choose C however the ans is A The answer from Qbank: cash collections = 200,000 + (156,000 - 132,000) Since the receivables from 2006 to 2007 has an increase of 156000-132000 = 2400, i thought we should deduct from the sales since it is increase in assets which is consider as outflow of cash. Why is it that the 2400 must be added to the sales for this case? Thanks

i forget to add the 1 more line: it states: Calculate cash collections and cash expenses

The account is unearned revenue, not accounts receivable. You have an increase in a liability account (not an asset) and the offset is an increase in cash. Basically they paid for goods or services which won’t be recieved until a future year.

I beg to differ with your last line Super 1. Unearned revenue is the cash that you have received in advance for the services which you are still due to offer. So that’s why it will be treated as a liability account.

SpyAli Wrote: ------------------------------------------------------- > I beg to differ with your last line Super 1. > Unearned revenue is the cash that you have > received in advance for the services which you are > still due to offer. So that’s why it will be > treated as a liability account. You’re right of course, and I wasn’t clear. " They" paid meaning the customers paid

oh thanks everyone for the advice. i mistaken unearned revenue as account receivables. Thanks for shedding the light…