Question

The following information pertains to R: Gross accounts receivable balance as of 01-01-15 was $850,000 Allowance...

The following information pertains to R:

  • Gross accounts receivable balance as of 01-01-15 was $850,000
  • Allowance for doubtful accounts balance as of 01-01-15 was $51,000
  • Total sales during 2015 (all sales were on a credit basis) were $5,200,000
  • AR write-offs during 2015 were $10,000
  • R’s 12-31-15 AR aging analysis indicates a required balan1ce in the allowance for doubtful accounts of $60,000.
  • The NRV of R’s receivables as of 12-31-15 was $940,000.

On the basis of the above, how much cash did R collect from its ARs during 2015?

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Answer #1
Calculation on Collection of Cash During the Year
Total Credit Sale: ( During 2015) 5200000
Opening AR on 01.01.2015 850000
Total AR 6050000
Less: Written off -10000
Add: Earlier Doubtful Debts 51000
Less: New Doubt ful Allownace -60000
Less: Closing NRV of AR -940000
Cash Collected during te Year 5091000

Written off: Such action is taken when it is 100% sure that cash will not be recovered.

HOwever, the doubtful allowance has increased from 51000 to 60000. hence 51000 is added back and 6000 is further reduced from the AR balance as it is still doubt over the receipt of revenue from such credit sale.  

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