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IrvineCPA
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Posted: 19 Jul 2009 at 10:58 | IP Logged  

An internal auditor is deriving cash flow data based on incomplete set of facts. Bad debt expense as $2,000. Additional data for this period follows:

 

Credit sales                                $100,000

Gross AR Beg                         $5,000

Allowance for bad debt            (500)

AR written off                              $1,000

 

Increase in net AR (after

Subtraction of allowance

For bad debts)                           $30,000

 

 

How much cash was collected this period on credit sales ?

 

  1. 68,000
  2. 70,000
  3. 68,500
  4. 64,000

  

Answer is A. This problem from Gleim, SU#6. I am having trouble figuring out the Ending AR Balance.



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CPA08va
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Posted: 19 Jul 2009 at 15:42 | IP Logged  

Bad debt Exp  DR 2000, Allow for uncollectible CR 2000 when estimating loss at beg of year

Subsequently reduced estimate by $1500 by bringing the allowance balance to 500 from 2000, so bad debt expense reduced by 1500

Allowance for uncollectible had to be DR 1000, as Accounts receivable was CR 1000 (actual loss)

Gross Beg A/R was 5000, so net beg A/R was 3000.  You increased this by 30,000 and then wrote it down by 1,000 resulting in ending AR being 32,000.  100,000 in credit sales - 32,000 in ending AR is 68,000 in cash collected.

 

I think that's how they got 68 but I am not sure either - took me a while to figure it out.

 



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Zeratul
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Posted: 19 Jul 2009 at 15:42 | IP Logged  

I hate these problems.

Anyways, using a bit of reverse engineering, we can figure out what the ending balance should be:

5,000+100,000-1,000-68,000=36,000 ending gross A/R
Ending Net A/R=5,000-500+30,000=34,500
36,000-34,500=1,500 allowance for bad debts

Now let's go about seeing how we would figure this out from the problem:
Beginning ABD:         500
A/R write-off:        (1,000)
Bad debt expense: 2,000
Ending ABD:          1,500

Someone please verify; I'm not 100% sure about this.
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IrvineCPA
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Posted: 19 Jul 2009 at 17:13 | IP Logged  

Gliem solution is suggesting an ending AR of 36,000. I still don't understand how to get there !

I am having to double count the allowance of $500 twice to get to 36,000.

 



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Zeratul
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Posted: 19 Jul 2009 at 17:29 | IP Logged  

OK, so I was right.

Here's how you do this.

First, you can find Net A/R from the information in the problem:
Beginning Net A/R: 5,000 gross A/R-500 ADB=4,500
Change in Net A/R: 30,000
Ending Net A/R: 30,000+4,500=34,500

Beginning ADB: 500
Writeoff of A/R: (1000)
Bad debt expense: 2,000

500-1000+2000=1,500 Ending ADB

34,500 Ending net A/R+1,500 ending ADB=36,000 Ending gross A/R
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