Question

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​ 2018, Thomas shipped and billed book titles totaling ​$780 comma 000. ​ Collections, net of return​ credits, during the year totaled ​$711 comma 041. The company spent ​$307 comma 256 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?

Answer 1

a)	Shipped and billed	780000
	Expenditure	307256
	Net profit for the year	472744
b)	Collections, net of return​ credits, during the year	711041
	Cash expenditure	307256
	Net cash flow for the year	403785
c)	The statement under (b) above is more useful to
	a Financial manager, as, it gives the profit that is
	realized in cash and ignores amounts that may or
	may not be realized in cash in future.
	The statement under (a) above includes incomes
	that have not been received and expenses that have not
	been paid, for during the period. Hence, it does not
	reflect the actual cash flow position, which is vital to
	a Financial manager.