FSTP exam question

Ruthyroo
Ruthyroo Just JoinedRegistered Posts: 4
I sat (and passed!) my FSTP exam yesterday :). But there was one question on one of the tasks that I had no clue on and ended up guessing. It was a question on incomplete records. Amongst other information, you were told the sole trader had started business at the beginning of the year, the business made 60000 of sales in the year, and there was a steady flow of business through the year. All sales were on credit and on average customers took 45 days to pay. The question asked, out of three possible answers, what would be the most likely receivables balance at the end of the year. I can't remember the exact amounts but one was around 5000, one around 7500 and one around 14000. I got as far as assuming 5000 sales per month then my head started hurting and I guessed the 7500 ish answer on the vague rational you'd be a month and half behind. Any thoughts how you'd attempt this kind of question? I must have done something right to pass but the curiosity is getting to me !

Comments

  • welshwizard
    welshwizard Trusted Regular South WalesRegistered Posts: 465
    How about Sales £/365 x no of days on average it takes to pay? £60,000/365 = £164.38 then £164.38 x 45 days = £7,397.10 average outstanding balance base don the 45 days repayment period. So, your £7,500 (ish) figure looks good to be.
  • welshwizard
    welshwizard Trusted Regular South WalesRegistered Posts: 465
    How about Sales £/365 x no of days on average it takes to pay? £60,000/365 = £164.38 then £164.38 x 45 days = £7,397.10 average outstanding balance based on the 45 days repayment period. So, your £7,500 (ish) figure looks good to be.
  • ajleighto
    ajleighto Registered Posts: 8
    OK
  • ajleighto
    ajleighto Registered Posts: 8
    Er my reply seems to have gone!! Rather than "OK" what I wanted to post was that it's 60000 due for the year, but because there's a 45 day delay in receiving all the receivables an easy way of visualising it is that 45 days after the year it's.all going to be in, on average. Thereby you have 45 days worth still due to you. This is 45 / 365 X 60000 which corresponds to answer above by welshwizard of just under 7500. In practice, with continuous sales and average days for repayment time remaining constant, while the receivables are being received, more sales are made in the second year so receivables balance is renewed staying approx the same through time
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