Question

Presented in the left graph are trends in sales revenue and cash received from customers over a six-year period. In the right graph are trends in cost of goods sold and cash paid for inventory over a six-year period. All inventory is purchased with cash. Sales Revenue vs. Cash Received from Customers Cost of Goods Sold vs. Cash Paid for Inventory $120,000 $450,000 $400,000 $100,000 $350,000 $80,000 $300,000 $60,000 $250,000 $200,000 $150,000 $40,000 $100,000 $20,000 $50,000 So $0 Year 1 2 3 4 5 6 5 6 Year-End Balance of Accounts Receivable Sales Revenue Cash Received from Customers Year 1 2 3 4 Year End Balance of Inventory Cost of Goods sold Cash Paid for Inventory Click here to open the graphs in a new tab. Required: 1. In Year 1, which is higher - Sales Revenue or Cash Received? In which year is it most likely the company had a large sale on - account without cash being collected? & In which year does it appear the cash from that large sale on account is collected? In a year that cash received from customers is greater than sales revenue, the year-end balance of Accounts Receivable: 5. In Year 1, which is higher - Cost of Goods Sold or Cash Paid? In which year is it most likely the company had a large purchase of inventory without it being sold? . In which year does it appear the excess inventory was sold without an additional cash purchases of inventory to replace it? In a year that cash paid for inventory is greater than cost of goods sold, the year-end balance of Inventory: 7 .

Answer 1

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Answering the first four parts as per answering guidelines. Please ask the rest of the parts separately.

1. In Year 1,it can be clearly seen from left graph that sales are higher than the cash received. It can also be confirmed from the little green bar at year 1, showing that there was some amount of 'Accounts Receivable' at year end, hence telling that all sales were not collected during the year.

2. The gap between Sales line and cash received line, with Sales being above the cash line is in year 3. Hence this is the year when company had a large sale without cash being collected. It can also be verified from the huge green bar at year 3, indicating that accounts receivable increased greatly in year 3.

3. In year 4, the cash received line is above the Sales line by huge gap, and the year end accounts receivables have also decreased substantially. Hence it can be safely said that cash from large sale was collected in year 4.

4. There are 3 years when cash received from customers is greater than the sales. It is in Year 2,4 and 6. In all these years, the year end accounts receivable amount is very low, almost zero.