Question

You are Controller for the Transportation Division of Second Data Inc. A new manager for the division has been appointed and is trying to understand all aspects of operations. Most of her training and experience is in marketing and is having trouble grasping accrual accounting. To aid in your explanation to the manager you derived the graphs below. Presented in the left graph are trends in sales revenue and cash received from customers over a six-year period. In the right graph are trends in cost of goods sold and cash paid for inventory over a six-year period. All inventory is purchased with cash. Sales Revenue vs. Cash Received from Customers Cost of Goods Sold vs. Cash Paid for Inventory $120,000 $450,000 $400,000 $100,000 $350,000 $80,000 $300,000 $250,000 $60,000 $200,000 $40,000 $150,000 $100,000 $20,000 $50,000 $0 $0 Year 1 2 3 4 5 6 Year 1 2 3 4 5 6 Year-End Balance of Accounts Receivable Sales Revenue Cash Received from Customers Year-End Balance of Inventory Cost of Goods Sold Cash Paid for Inventory

Answer 1

1	Sales Revenue
2	Year 3
3	Year 4
4	Decreases
5	Cash Paid
6	Year 4
7	Year 5
8	Increases