Thomas Book Sales, Inc., supplies textbooks to college and university bookstores. The books are shipped with...
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
$740 comma 000740,000.
Collections, net of return credits, during the year totaled
$679 comma 270679,270.
The company spent
$298 comma 425298,425
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?
Homework Answers
|
a- |
sales revenue |
740000 |
|
less cost |
298425 |
|
|
net profit |
441575 |
|
|
b- |
sales |
679170 |
|
less cost |
298425 |
|
|
net profit |
380745 |
|
|
c- |
The accrual method would be more useful to the finance manager. It creates a clear picture of total sales during the year while cash method of accounting only takes into consideration the amount collected from sales or cash sales. |
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