A general contractor has accounts receivable of $125,000 at the beginning of the month, invoices $85,000 in new work, and collects $95,000 during the month. What is the ending accounts receivable balance?
Correct Answer
A) $115,000
Ending A/R = Beginning A/R + New Invoices - Collections = $125,000 + $85,000 - $95,000 = $115,000. This follows the basic accounts receivable formula.
Why This Is the Correct Answer
The correct answer follows the fundamental accounts receivable formula used in construction accounting. Starting with $125,000 owed to the company, adding $85,000 in new invoices increases what customers owe, while collecting $95,000 reduces the balance. The calculation $125,000 + $85,000 - $95,000 = $115,000 represents the money still owed by customers at month-end.
Why the Other Options Are Wrong
Option B: $305,000
This shows only the amount collected during the month, ignoring both the beginning balance and new invoices that remain unpaid.
Option C: $210,000
This represents only the beginning balance plus new invoices ($125,000 + $85,000 = $210,000) without subtracting the collections that were actually received.
Memory Technique
Use the acronym 'BIN-C': Beginning balance + Invoices - Collections = New ending balance. Think of putting invoices IN the receivables bin, then taking Collections out.
Reference Hint
Business and Finance for Contractors - Chapter on Financial Statements and Cash Flow Management, specifically the section on Accounts Receivable tracking
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