Cash collections ? counter, 2011, collection, customers

dvilayphet

Accounting is not my strong suit so the ?'s about cash collections, accts rec, payable, etc seem counter intuitive. For example: AIG reports '07 revenue of 14.3 BB. During 2007 accts rec rose by .7 BB, accts payable increased by 1.1 BB, and unearned revenue increased by .5 BB. Cash collection from customers was??

Thought process on this would be appreciated. Thanks.



Edited 1 time(s). Last edit at Thursday, May 26, 2011 at 11:19PM by jgrandits.

wilslm

That's a good one. I confused this with the direct method of computing cash flow...here it's only cash collecetd *from customers*.

Rasec

14.1. codont's explanation is helpful.

jarobi04

It should be 15.2.... no?

giants2010

Cash Collections = Revenue + decrease ( - increase ) in A/R + increase in unearned revenue ( - decrease in unearned revenue ).

This might include securitize, if you securitize A/R, then you deduct it off Cash Collections.

Accrual = revenue + increase in A/R ( - decrease in A/R) + decrease in unearned revenue ( - increase in unearned revenue )

FinancialAnaly

Nice explanation, thanks codont.

Otabek

I was just thinking i needed to add 0.5 to my answer... good call Thecodont

benbenxiong

I do not know anything about the question but I will take a run at it....I will try and simplify it too.


Think accrual.

14.3 in revenue. Did they collect all that in cash? No, because they AR rose by .7

So subtract .7 from 14.3 = 13.6

Now, AP increased. what does that mean? Well they held off paying some bills (e.g. accrued them) but paying or not paying cash to suppliers does not affect cash from customers so ignore it

Now unearned revenue increased by .5 what does that mean. Well customers paid them money but they have not been able to recognize the revenue. So that's cash from customers. Add it

The answer should be 14.1

maryli

14.3 minus the increase in AR = 13.6BB