My question relates to Becker Simulation R3 - Situation Tab. I copied and pasted the question below, and changed the font color to red for the area in question.

My question is how do you know that net sales indicated in "book" includes the increase of Account Reveivables (from one year to the next)? Most of my clients do not add their account receivable to the financial statements that they give me.

Any advice for handling these types of situations would be appreciated.

Situation Question From Becker R3 Simulation:

The following adjusted revenue and expense accounts appeared in the accounting records of Pashi Inc. an accrual basis taxpayer for the year ended December 31 20X4.

Revenues
Net sales 3000000
Dividends 8000
Interest 18000
Gains on sales of stock 5000
Key-man life insurance proceeds  100000
Total  3131000

Costs and expenses
Cost of goods sold 2000000
Salaries and wages 500000
Bad debt expense 13000
Taxes other than federal income 62000
Interest 12000
Contributions 5000
Depreciation 60000
Other 40000
Federal income taxes  120000
Total  2812000
Net income  319000

The following additional information is provided:

1. Trade accounts receivable at December 31 20X3 and at December 31 20X4 amounted to 200000 and 250000 respectively.

2. The 8000 dividends were from Meg Inc. a taxable domestic corporation whose securities are traded on a major stock exchange.  Pashi's ownership percentage is more than 20% but less than 80%.

3. Interest revenue consists of:

Corporate bonds 15000
Municipal bonds 3000

4. Gains on sales of stock consist of the following unrelated corporations:

Ral Corp. (bought in May 20X3 sold in June 20X4) 1000
Blu Inc. (bought in November 20X3 sold in September 20X4) 4000

5. Pashi Inc. owned the key-man life insurance policy paid the premiums and was the direct beneficiary.  The proceeds were collected on the death of the corporation's treasurer.

6. Accounts payable for merchandise at December 31 20X3 and at December 31 20X4 amounted to 75000 and 100000 respectively.

7. Bad debt expense represents a reasonable addition to Pashi Inc.'s allowance for uncollectible accounts under the method consistently used.  Actual accounts written off in 20X4 amounted to 4000.

8. Taxes other than federal income consist of:

Payroll taxes 40000
Property taxes 20000
Penalty for late payment of taxes 2000

9. Interest expense consists of 11000 interest on funds borrowed for working capital and 1000 interest on funds borrowed to buy the municipal bonds.

10. Contributions were all paid in 20X4 to State University specifically designated for the purchase of laboratory equipment.

11. Depreciation per books is straight-line.  For tax purposes depreciation amounted to 85000.

12. Other expenses include premiums of 5000 on the key-man life insurance policy covering the treasurer who died in December 20X4.

13. Federal income tax paid in 20X4 amounted to 105000.  The difference between the income tax provision and income tax paid is the result of temporary differences.

You have to remember these statements are on an accrual basis.  So a typical sale on credit would be reflected in the books as:

Accounts Receivable      $xx,xxx

          Sales Revenue          ;          $xx,xxx

I'm not quite sure why you would suspect sales wouldn't automatically include the increase in AR unless you were thinking cash basis...