To determine the credit sales for the year 2016, we need to analyze the information provided about trade debtors, trade creditors, and the cash transactions that occurred during the year. Let's break this down step-by-step.
Step 1: Understand the Components
- Trade Debtors: These are amounts owed to the business by customers who have purchased goods on credit.
- Beginning of 2016: 80,000
-
End of 2016: 100,000
-
Trade Creditors: These are amounts the business owes to suppliers for goods purchased on credit.
- Beginning of 2016: 30,000
-
End of 2016: 40,000
-
Stock: This represents the inventory held by the business.
- Beginning of 2016: 70,000
-
End of 2016: 90,000
-
Cash Transactions:
- Cheques received from trade debtors in 2016: 350,000
- Payments made to trade creditors in 2016: 220,000
Step 2: Calculate the Change in Trade Debtors
To find out how much credit sales occurred, we need to consider the change in trade debtors over the year.
- Trade Debtors at the beginning of 2016: 80,000
- Trade Debtors at the end of 2016: 100,000
Change in Trade Debtors:
[
\text{Change in Trade Debtors} = \text{End Debtors} - \text{Beginning Debtors} = 100,000 - 80,000 = 20,000
]
This means that the amount owed by customers increased by 20,000 during the year.
Step 3: Calculate Total Cash Received from Debtors
The total cash received from trade debtors during the year is given as 350,000. This amount includes cash received from both credit sales made in the current year and any outstanding amounts from previous years.
Step 4: Set Up the Equation for Credit Sales
To find the credit sales for the year, we can set up the following equation:
[
\text{Credit Sales} = \text{Cash Received from Debtors} + \text{Increase in Trade Debtors}
]
Substituting the values we have:
[
\text{Credit Sales} = 350,000 + 20,000 = 370,000
]
Conclusion
Thus, the total credit sales for the year 2016 is
370,000.
Explanation of Options
-
Option A (530,000): This option is incorrect because it does not account for the increase in trade debtors and miscalculates the cash received.
-
Option B (370,000): This is the correct answer as derived from our calculations.
-
Option C (350,000): This option only reflects the cash received from debtors and ignores the increase in trade debtors, which is essential for calculating credit sales.
-
Option D (330,000): This option is incorrect as it does not accurately reflect the cash received and the increase in debtors.
Revision Summary
- Credit sales can be calculated by adding cash received from debtors to the increase in trade debtors.
- Always consider changes in trade debtors when calculating credit sales.
- The formula used is: Credit Sales = Cash Received + Increase in Trade Debtors.
- The correct answer for credit sales in 2016 is 370,000.