Why this is mistaken
Cash sales do not create receivables. Total net sales may be a practical proxy when credit sales are unavailable, but sales mix can move the proxy. Label the numerator, disclose the limitation, and avoid direct comparison with a true credit-sales measure.
Where to watch
When this mistake may appear
- Published statements do not separate cash and credit sales.
- Two firms have different sales-channel mixes.
Check your work
Your work may contain this mistake if:
- Labels net sales as net credit sales.
- Compares a proxy ratio with a credit-sales ratio as if definitions match.