[amp_mcq option1=”Collections > Current Purchases” option2=”Collections > Current Sales” option3=”Collections < Current Purchases" option4="Collections < Current Sales" correct="option3"]
The correct answer is: C. Collections < Current Sales
Collections are the amounts of money that a company receives from its customers for goods or services that have been sold. Current sales are the total amount of revenue that a company has generated from its sales during a specific period of time.
If the closing balance of receivables is less than the opening balance for a month, then this means that the company has collected more money from its customers than it has sold to them during that month. This can happen for a number of reasons, such as if the company has a large number of customers who pay their bills late, or if the company has offered discounts or promotions that have resulted in customers paying their bills early.
In any case, a lower closing balance of receivables than the opening balance indicates that the company is doing a good job of collecting its money from customers, which is a positive sign for the company’s financial health.
Here is a brief explanation of each option:
- A. Collections > Current Purchases. This option is not correct because collections are the amounts of money that a company receives from its customers, while current purchases are the amounts of money that a company spends on goods or services. It is not possible for a company to receive more money from its customers than it spends on goods or services.
- B. Collections > Current Sales. This option is not correct because collections are the amounts of money that a company receives from its customers, while current sales are the total amount of revenue that a company has generated from its sales during a specific period of time. It is not possible for a company to receive more money from its customers than it has generated from its sales.
- C. Collections < Current Sales. This option is correct because it is the only option that is consistent with the fact that the closing balance of receivables is less than the opening balance. As explained above, this means that the company has collected more money from its customers than it has sold to them during that month.
- D. Collections = Current Sales. This option is not correct because it is not consistent with the fact that the closing balance of receivables is less than the opening balance. As explained above, this means that the company has collected more money from its customers than it has sold to them during that month. Therefore, the closing balance of receivables cannot be equal to the current sales.