Question 2.3: The sales revenue figure for a business for the year was £34...
The sales revenue figure for a business for the year was £34 million. The trade receivables totalled £4 million at the beginning of the year, but had increased to £5 million by the end of the year.
Basically, the trade receivables figure is dictated by sales revenue and cash receipts.
It is increased when a sale is made and decreased when cash is received from a credit customer. If, over the year, the sales revenue and the cash receipts had been equal, the beginning-of-year and end-of-year trade receivables figures would have been equal.
Since the trade receivables figure increased, it must mean that less cash was received than sales revenues were made. This means that the cash receipts from sales must be £33 million (that is, 34 − (5 − 4)).
Put slightly differently, we can say that as a result of sales, assets of £34 million flowed into the business during the year. If £1 million of this went to increasing the asset of trade receivables, this leaves only £33 million that went to increase cash.