Question

Blue Spruce Corp. significantly reduced its requirements for credit sales. As a result, sales during the current year increased dramatically. It had receivables at the beginning of the year of $41,800 and ending receivables of $183,000. Credit sales were $344,900. Determine cash collections during the period and discuss how your findings would affect Bailey Corp.'s quality of earnings ratio. (Do not compute.) What concerns might you have regarding Bailey's accounting?

Answer 1

Cash collection is $203,700

Step-by-step explanation:

The computation of the cash collection during the period is shown below:

= Beginning balance of accounts receivable + credit sales - ending balance of the accounts receivable

= $41,800 + $344,900 - $183,000

= $203,700

The quality of earning ratio depends upon the credit terms given by the business organization to the customer. If the company allow more credit terms then the earning of the company affect negatively whereas if it allow less credit terms, then, of course, the sales of the company will be higher

The concern is that if long credit terms are given then it damage the company image and its reputation.