CS Executive · Corporate Accounting and Financial Management · Forecasting Financial Statements
In the percentage-of-sales method of forecasting financial statements, which of the following items is normally treated as varying directly with sales?
Trade receivables is the item that varies directly with sales in the percentage-of-sales method, because credit sales generate receivables. Share capital, long-term loans and securities premium are financing items fixed by management decisions and do not automatically change in proportion to sales.
- AEquity share capital
- BTrade receivablesCorrect
- CLong-term bank loan
- DSecurities premium
Explanation
The percentage-of-sales method assumes items linked to operations, such as receivables, inventory and payables, move in proportion to sales. Share capital, long-term loans and securities premium change only through financing decisions, not with sales.
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