Becker FAR CPA-00264

The following information was taken from the 1990 financial statements of Planet Corp.

Accounts Receivable Jan 1 1990 21600

Accounts Receivable Dec 31 1990 30400

Cash Sales 438000

Uncollectible accounts 1000

No accounts receivable were written off or recovered during the year

If the direct method is used in the 1990 statement of cash flows, Planet should report cash collected from customers as :

a. 447800

b. 446800

c. 429200

d. 428200

As per the software the answer is 429200

and I calculated it as 447800.

The uncollectibles of 1000 are not taken into consideration. Why so? Please explain.

Cash Collected =

Cash Sales-Increase in A/R= 438,000-8,800 = 429,200

Uncollectibles of 1,000 are not considered because those were Credit Sales to begin with hence were never considered for Cash calculation. (No Cash was involved)