Question

The parts of the comparative I/S of a firm for the years of 2016 and 2017 looks as follows:

2016 2017

Sales $100,000 $105,000

COGS $40,000 $52,500

SG&A $10,000 $21,000

and the B/S shows the Accounts Receivables balances for 2016 and 2017 as 10,000 and 15,000 respectively.

Based on the above information, forecast 2018 Accounts Receivables balance. Put the nearest dollar amount without comma or dollar sign

Answer 1

First of all, we will calculate the accounts receivable turnover ratio
Accounts receivable turnover ratio = Net Credit sales/Average accounts receivable
We are assuming all the sales are credit sales
Sales	$105,000
Beginning accounts receivable	$10,000
Ending accounts receivable	$15,000
Average accounts receivable [(10000+15000)/2]	$12,500
Accounts receivable turnover ratio	8.40
Now we will forecast the sales for 2018
Sales in 2016	$100,000
Sales in 2017	$105,000
% increase in sales	5%
Sales in 2018 = Sales in 2017 + (sales in 2017 x 5%)	$110,250
Now we will forecast 2018 accounts receivable balance
Accounts receivable turnover ratio = Net Credit sales/Average accounts receivable
8.40 = $110,250/Average accounts receivable
Average accounts receivable = $110250/8.40
Average accounts receivable = $13125
Beginning Accounts receivable	$15,000
$13,125 = ($15000+Ending accounts receivable)/2
Ending accounts receivable = ($13125 x 2)-$15000
= $26250-$15000
= $11,250