Bart’s Brewskies saw sales of $50,000 in December-primarily due to New Year’s Eve celebrations. Bart determined that 30% of his sales are paid in cash, while the rest are billed for their brewskies. Of the money owed, 40% is paid December, while the remaining is paid the following month. What is the increase of Accounts Receivable on New Year’s Eve?
Explanation
Answer -A - The increase of the accounts receivable account is $21,000. To calculate, $50,000 multiplied by the 70% of A/R customers is $35,000. Of this $35,000, 60% remains at the month’s end, which is $21,000.
Key Takeaway: The balance of an Accounts Receivable account at any point is the amount of money owed to the company. Since we do not have a starting point-also known as beginning balance-we can only calculate the change in this account. In this example, $50,000 was made in December. 70% of that, or $35,000, was billed to customers. Of the $35,000, 60% remains unpaid at the end of December, which is $21,000-the balance of A/R account.
