Plimpton Sales presents income statements fo rthe first three months of this yea

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

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