Diane Clubb is trying to convert income statement items from an accrual basis to a cash basis. Accounts Receivable at the beginning of the year totalled $205,000. At the end of the year Accounts Receivable amounted to $240,000. On the income statement using accrual accounting, sales were $360,000. Amortization Expense is $18,000 on the accrual income statement.
Diane calculates her cash received from customers to be $305,000. Do you accept her calculation? What written recommendations could you suggest to Diane? How would she calculate the amount of cash paid for advertising if Advertising Expense was listed as $6,000 and the Prepaid Advertising account showed a decrease of $400?