answer reads “accruing wages increases current liabilities and expenses, but collecting receivables has no effect on current assets or sales therefore the current ratio and net income both decrease. Collecting accounts receivable increases cash flow from operations and …” I agree about wages. Receivables are regarded as assets. Perhaps collecting receivables in the form of cash is not an asset but it does increase CFO. In any event, how exactly is the collection of receivables treated. Must be some sort of cash/equity. Please advise.
collection of a receivable involves: Journal Entry: Debit Cash (Operating Cash) CFO goes up Credit Accounts Receivable Collection of cash has no impact on equity, Revenue is recorded when the sale is made, as is the cost associated with the sale, not when the cash is collected, unless the customer paid with cash to begin with.