3-Statement Change: Accounts Receivable Increases by $50

Step 1: Income Statement Impact

Applying the Net Income formula to the $50 credit sale:

Net Income Impact = $50 × (1 - 0.25) = $50 × 0.75 = $37.50

Revenue is recognized as soon as the sale is made under accrual accounting, regardless of when the customer actually pays — the $50 flows straight through to the top of the income statement and down to Net Income after tax, exactly as any other sale would.

Step 2: Cash Flow Statement Impact

Net Income increases by $37.50, but the full $50 sale remains uncollected, so Accounts Receivable increases by $50 — a use of cash in the operating section:

CFO Impact = $37.50 - $50 = -$12.50

Despite higher Net Income, cash actually falls by $12.50 in the period — the company paid tax on income it has not yet collected in cash.

Step 3: Balance Sheet Impact

Assets rise by $37.50 (a $50 increase in Accounts Receivable partly offset by a $12.50 decrease in Cash), exactly matching the $37.50 increase in Retained Earnings — the Balance Sheet stays in balance.

Final Results

• Net Income Impact: +$37.50
• Cash Flow from Operations Impact: -$12.50
• Accounts Receivable: +$50.00

This divergence between rising Net Income and falling cash is exactly what earnings-quality analysis screens for — a company can look profitable on the Income Statement while its cash position quietly deteriorates if customers are slow to pay.

Would you like to explore what happens if the customer never pays and the receivable must be written off instead?