Question

Compute trend percents for the following accounts, using 2013 as the base year (round the percents to whole numbers). State whether the situation as revealed by the trends appears to be favorable or unfavorable for each account.

	2017	2016	2015	2014	2013
Sales	\(282,880	\)270,800	\(252,600	\)234,560	$150,000
Cost of goods sold	128,200	122,080	115,280	106,440	67,000
Accounts receivable	18,100	17,300	16,400	15,200	9,000

Short answer

Comparabletrends in both costs of goods sold and accounts receivable are slightly negativegiven the trend in sales.

Step-by-step solution

Meaning of Accounts Receivables

In accounting terms, trade receivables or accounts receivable is anything that has been sold that a company owes another company. Trade receivables are what a company owes for its goods and services.

Step 2:Stating whether the situation revealed by the trends appears favorable or unfavorable for each account.

	2017	2016	2015	2014	2013
Sales	189	181	168	156	100
Cost of goods sold	191	182	172	159	100
Accounts receivable	201	192	182	169	100

Note: Following formula should be used to find out the trend percent:

$\mathit{T}\mathit{r}\mathit{e}\mathit{n}\mathit{d}\mathit{p}\mathit{e}\mathit{r}\mathit{c}\mathit{e}\mathit{n}\mathit{t}\mathbf{=}\frac{\mathbf{C}\mathbf{u}\mathbf{r}\mathbf{r}\mathbf{e}\mathbf{n}\mathbf{t}\mathbf{y}\mathbf{e}\mathbf{a}\mathbf{r}}{\mathbf{B}\mathbf{a}\mathbf{s}\mathbf{e}\mathbf{y}\mathbf{e}\mathbf{a}\mathbf{r}}$

The base year is 2013 (given)

Analysis:

The sales trend is in favor. While this is better than no growth, without other information about the economic circumstances in which this trend happened, such as inflation rates and rivals' performances, it is impossible to conclude whether the sales trend is beneficial.

The comparable trends in both costs of goods sold and accounts receivable are slightly negative given the trend in sales. For the most recent year indexed, the cost of goods sold is 191, accounts receivable are 201, and for sales, it is 189. It shows that the cost of goods sold and the accounts receivable index are rising faster than the sales index.