Hilde Company reported accounts receivable of $40 000 at the beginning of the year. It now reports a balance of $28 000 at the end of the year. From this information, assuming there were no accounts written off as bad debts during the year, it is possible to determine that during the year:
A) credit sales were higher than cash collected from customers.
B) credit sales were less than cash collected from customers.
C) the firm was doing a poor job of collecting its receivables.
D) credit sales decreased from the previous year.

Question

Quizplus · Accepted Answer

If accounts receivable decreased from $40,000 to $28,000 without any write-offs, it means that the company collected $12,000 more in cash than it extended in credit sales. Therefore, credit sales must be less than cash collected from customers.

Hilde Company Reported Accounts Receivable of $40 000 at the Beginning