Question

A sole trader had trade receivables of £2,700 at 1 May and during May made cash sales of £7,200, credit sales of £16,500 and received £15,300 from his credit customers.

The balance on his trade receivables account at the end of May was:
A £1,500
B £3,900
C £8,700
D £11,100

Answer 1

To calculate the ending balance on the trade receivables account, you start with the opening balance (£2,700), add credit sales (£16,500), and subtract cash received from credit customers (£15,300), resulting in an ending balance of £3,900. The correct answer is option B.

Step-by-step explanation:

The balance on the sole trader's trade receivables account at the end of May can be calculated by determining the change in trade receivables over the course of the month. We begin with the opening balance of the trade receivables, which is the amount owed by customers to the business at the start of the period.

We then adjust this balance for the transactions during the month that affect trade receivables: credit sales, which increase the amount customers owe, and cash receipts from credit customers, which decrease the amount owed.

The cash sales do not affect trade receivables since they are paid for immediately and do not result in a customer owing money to the business.

To find the ending balance, you perform the following calculation:

Opening Trade Receivables + Credit Sales - Cash Received from Credit Customers = Ending Trade Receivables

£2,700 + £16,500 - £15,300 = £3,900

The balance on the trade receivables account at the end of May was therefore £3,900.