Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Overtrading
- This topic has 4 replies, 2 voices, and was last updated 4 years ago by John Moffat.
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- March 14, 2019 at 12:21 am #509282
Hi Sir John,
Can I be clarified with this as I am a bit confused? As overtrading means a low working capital, why is it that an increase in sales revenue is a symptom of overtrading as this might mean either increase in cash or receivables, thereby increasing the working capital?
Thank you in advance.
March 14, 2019 at 12:58 am #509283Additionally, relative to this query for clarification.
Does overtrading corresponds to aggressive approach?
March 14, 2019 at 9:15 am #509302A rapid increase in sales is just a possible symptom of overtrading. If sales increase rapidly then if they have not planned properly then they might be forced into a large overdraft, Higher sales will mean more receivables, but it takes time to get the cash from the receivables.
Please watch my lectures where I explain all of this.And no, it does not correspond to an aggressive approach. An aggressive approach is where a company deliberately decides to use more short-term finance. Overtrading is where they have been forced into it by bad planning.
April 1, 2019 at 12:54 pm #510958Thanks.
April 1, 2019 at 2:38 pm #510966You are welcome 🙂
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