Accounting Online Program Certification Practice Test

If a sole trader has trade receivables of £2,700 at the beginning of May and cash sales of £7,200 during May, what is the trade receivables balance at the end?

1. £3,900

2. £2,700

3. £4,500

4. £6,000

The correct answer is: £3,900

To determine the trade receivables balance at the end of May, it's essential to understand how trade receivables interact with cash sales and any credit sales that may occur. Trade receivables represent amounts owed to the business by customers who have purchased goods or services on credit. The initial balance of trade receivables at the beginning of May is £2,700. During May, the sole trader has cash sales of £7,200. Cash sales do not contribute to trade receivables because they are satisfied immediately with cash rather than credit. Therefore, the trade receivables will only change due to credit sales or collections from existing receivables. However, without additional information indicating that any credit sales occurred or that any previously outstanding trade receivables were collected, we assume that those initial trade receivables remain unchanged throughout May. Thus, if no credit sales or payment collections are specified, the trade receivables at the end of the month would still be £2,700, reflecting only the receivables that have not been settled. Therefore, the existing trade receivable balance remains intact, resulting in a final balance of £2,700. Given this scenario, the option "A" is not the correct