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How do I distinguish when to use the credit sales (IS) to compute the reduction in receivables as opposed to using the current year receivables (SOFP) to compute the reduction in receivables?
A lot depends on the information given in the question, and exactly what is required of you.
Usually we are interested in how quickly money is collected from credit customers in which case we would usually look at the receivables (SOFP) / credit sales (IS) x 365.
I am sorry I cannot be more specific but if you refer to any of the past exam questions then I will happily explain what they have done (and why!).
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