Shelter Products sells portable livestock shelters to hog producers in the Central and Midwest regions of the United States. The terms of sale require cash payment within 30 days, and most customers take full advantage of this payment option. Sales are somewhat seasonal as indicated by the following table of monthly sales, accounts receivable, and cash receipts information. Accounts receivable figures are as of the month end, and December credit sales and cash collections are omitted for brevity.

Required:
1. Which accounting attribute€”current month€™s credit sales or cash collections€”seems to do the better job of predicting future (i.e., next month€™s) cash collections? Why?
2. Briefly explain why current period accrual earnings may be a better predictor of future operating cash flow than is current period operating cashflow.

Transcribed Image Text:

Dec Jan Feb MarAprMayJune $38.000 $24,000 $45,000 56,000 $63,000 $42,000 Credit sales Accounts receivable $15,000 36,000 23,000 42,000 55,500 1,000 41,000 Cash collections 17,000 37,000 26,000 42,500 57,500 62,000