Plimpton Sales presents income statements fo rthe first three months of this yea
ID: 2769823 • Letter: P
Question
Plimpton Sales presents income statements fo rthe first three months of this year. Revenues are $1,000,000 in January, $1,2000,000 in February, and $1,400,000 in March, while expenses total $800,000 in January, $900,000 February, and $1,000,000 in March. Despite the positive net income, the controller believes that Plimpton Sales needs to arrange short-term financing of $300,000 to make payroll the next month. Which of the following statements is MOST correct?
A-The companys accounts payable balance has increased over the past 3 months.
B-The companys accounts receivable balance has decreased over the past 3 months.
C-The controller must have made a mistake since the companys net income for the 3 months is $900,000
D-The companys accounts receivable balance has increased and the accounts payable balance has decreased over the past 3 months.
Explanation / Answer
D-The companys accounts receivable balance has increased and the accounts payable balance has decreased over the past 3 months.
As when the receivable balance increased the Cash receipts will reduce and when the Accounts payable Decreased the Cash Payment will increase both will will create shortage in Working capital