[Anonymous]

Journal entry to record an error in an adjusting entry:

DR Cost of sales $45

DR PP&E 45

CR Sales$45

CR Inventory45

Days Sales in Accounts Receivable – Decrease?? how come?

The increase in sales (credit of $45) will increase daily net credit sales and thereby decrease the days sales in accounts receivable ratio.

I didnt understand the journal entry… what dr PP&E means here? why are we debiting here? and how it effects the above ratio.

Can anyone please explain

ThQ

[rzrbkfaith]

Try not to read too much into the question. The reason why the journal entry is made is not important. The two things that affect days sales in A/R are sales and A/R. Its important to understand the ratio. This ratio is 365/Accounts receivable turnover. A/R turnover is sales/accounts receivable.

The BEST piece of advice I got from Becker was to plug in numbers to see what the effect would be. In this case if we assume sales of 1000 and A/R of 20 (before the entry) then we would have 365/(1000/20) or 7.3 for Days Sales in A/R. If you increase sales by 45 then it would be 365/(1045/20) or 6.99. My advice would be to know the ratios and when faced with a question like this, plug in the numbers and see what happens to the ratio!

AUD - 99
BEC - 97
REG - 91
FAR - 1/8/16

[Anonymous]

thanks for the response 🙂

but a quick question… per ur explanation… u are assuming its a credit sales… but it can be cash sales too right?

Days Sales in Accounts Receivable – 365 * Average A/R / Net Credit sales.

i mean in the journal entry.. ntn is mentioned (neither A/R nor Cash) ..

Btw.. wowww on ur AUD score!

I m so nervous abt it…:(

[Anonymous]

Cash Sales wouldn't be in A/R, since the money was already received at the point of sale.

[rzrbkfaith]

@CPA_IN_MAKING

You are reading too much into the entry. The entry is the entry. There was no adjustment to A/R or cash. The only adjustment was to sales. If you look at my example, I only adjusted sales and not A/R. Don't try to add anything to the entry. This is how they will trip you up. Make sure to read the question and make sure you understand the English. When you try to add to the question or try to interpret it, you will trip yourself up. That is also one of the biggest pieces of advice I can offer – read the English.

AUD - 99
BEC - 97
REG - 91
FAR - 1/8/16

[Author]

Replies