Hi guys in Notes D provided in the question, it says " 70% of the company's sales were made for cash" , which implies 30% of the revenue are on credit. In the balance sheet, shouldn't trade receiveables be reflect on this matter? shouldn't Trade receiveables be in direct relationship with credit sales?? (as in if credit sales increase for x, trade receiveable should increase by x as well??) Also for the analysis of the ratios. under current ratio, current liabilities is referring as 12 instead of 10 which this figure is derived from the balance sheet. Did i misread something?? Thanks for your timely reply!
Some of the revenue for credit will have been paid off by the time of the balance sheet, so no, trade receivables (balance sheet amount) should not necessarily bear any direct relation to revenue. It simply shows the amount that still hasn't been paid for.
So it's just an assumption? How would I know when am I suppose to add that into trade receiveables when would I not to? also the Current Liabilities issue, did i misread something? Thanks!
Hi Littlesan Alpha 9 is absolutley right about trade receivables - the trade receivables in the trial balance is the amount that is still owed by customers on 31/12/07. (You only need the information about credit sales for the debtors turnover ratio.) However, you've spotted a mistake in the current ratio - the figure for current liabilities should be 10. Sorry to have caused confusion - we'll get it corrected. Margaret
