Solve for Accounting Revenue and Sales, Receivables

Posted by Professor Cram in Weblog

Dear Professor Cram, 

I need your advise. Business sells items. 25% customers pay next month. For Oct. cash collected was $21000 and $6500(accounts receivable) from Sept. Total-27500. What is revenue in this case?

Thank you,

Luiza

___________________

If you are on cash basis accounting, this is simply the $27,500 received in the month.

However, I expect you are on accrual basis, in which case the sales made in the month are what you want to count instead of the cash received. Under accrual, you sold $21,000 that you already collected on, and another 25% that will be collected the following month. Therefore, the $21,000 is 75% of revenue for the month. Now it becomes an algebra problem:

$21,000/.75 = $28,000 

The $6,500 of accounts receivable is the 25% of the prior month's revenue, so it doesn't count for this month.

Good studying! 

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