The following information relates to the Fowler Company for 2010: $\begin{array}{ll}
\text { Sales discounts } & \$ 700 \
\text { Beginning accounts receivable } & 5,000 \
\text { Collections on accounts receivable } & 20,000 \
\text { Total sales seported on income statement } & 82,500 \
\text { Ending accountsreceivable } & 7,000
\end{array}$ What was the amount of cash sales?
A)$61, 200
B)$59, 800
C)$63, 800
D)$65, 200

Question

Quizplus · Accepted Answer

To find the amount of cash sales, we first calculate the total sales revenue recognized from credit sales. This involves adjusting the total sales reported on the income statement for sales discounts and then determining the net change in accounts receivable to find the credit sales portion. The cash sales can then be calculated by subtracting the credit sales from the total sales.1. Adjust total sales for sales discounts: $82,500 - $700 = $81,800.2. Calculate the net change in accounts receivable: Ending AR ($7,000) - Beginning AR ($5,000) = $2,000 increase.3. Collections on accounts receivable represent the cash collected from credit sales, so to find the credit sales, we add the increase in accounts receivable to the collections: $20,000 + $2,000 = $22,000.4. Subtract the credit sales from the adjusted total sales to find cash sales: $81,800 - $22,000 = $59,800.

The Following Information Relates to the Fowler Company for 2010