Problem: Blue, inc. sells playground equipment to schools and municipalities. Invoices are mailed at the end of each month for all goods shipped during that month; credit terms are net 30 days. Sales and account receivable data for 2005, 2006, and 2007 were as follows.
Year ending December 31 2005 2006 2007
sales $1,785,980 $1,839,559 $1,986,724
Accounts receivable at year-end 220,189 227,896 267,094
Required:
1. Calculate the growth rates in sales and receivables during 2006 and 2007.
2. Do your calculations indicate any potential problems with interworld's receivables?
3. If so, suggest a possible explanations for your findings and indicate what action, if any, would then be needed to bring interworld's financial statements into conformity with GAAP.