Accrual income versus cash flow for a period: 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 2006, Thomas shipped and billed book titles
totaling $780,000. Collections, net of return credits, during the year totaled $708,211. The company spent $302,295 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?
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The solution provides step by step method for the calculation of net profit using accrual accounting and net cash flow usinf cash accounting. Formula for the calculation and Interpretations of the results are also included.