Question

Horton Housewares’ accounts receivable decreased during the year by $5 million. What is the amount of cash Horton received from customers during the reporting period if its sales were $33 million? Prepare a summary entry that represents the net effect of the selling and collection activities during the reporting period.

Answer 1

If Horton Housewares' accounts receivable decreased by $5 million and its sales were $33 million, then the company received $28 million in cash from customers during the reporting period. This can be represented by the following summary entry:

Debit: Cash (increase of $28 million)

Credit: Accounts Receivable (decrease of $5 million)

Credit: Sales (increase of $33 million)

The net effect of the selling and collection activities during the reporting period is an increase in cash of $28 million and an increase in sales of $33 million.