Gilliam industries will have to adjust for the change in Accounts Receivable.
Revenue recorded = $6.4 million
Beginning balance = $392,000
Ending balance = $439,000
The amount of net income must be adjusted to account for operating items that typically affect net income alone when calculating cash flow from operating activities using the indirect method.
Calculating the change in accounts receivable
= Beginning balance - Ending balance
= 392,000 − $439,000
= - 47,000
In order to account for the change in Accounts Receivable, Gilliam industries will need to reduce cash flows from operating activities by $47,000. As a result, the business will need to make adjustments for the change in Accounts Receivable.
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