CPA-00030

I its Dec-31-1999 B/S Fleet reported AR of $100K before allowance of uncollectible of $10K. Credit sales during 2000 were $611K and collection from customer excluding recoveries was $511K. During 2000 AR of $45K were written off and $17K were recovered. Fleet estimated that $15K of the AR at Dec-31-2000 were uncollectible. In its Dec-31-2000 B/S what amount should Fleet report as AR before allowance.

58K - 67K - 75K - 82K  (correct answer 75K)

My question is why the recoveries are not deducted? I always answer 58K in this mcq. In becker's explanation the 17K are added and substrated simultaneously :( ...

Because the account has been written off as uncollectible, it is no longer sitting in A/R.  You must first add it back to AR:

A/R

             Allowance for Doubtful Accounts

Then take it out when you received the cash

Cash

                  A/R

The net effect is you received cash and increased the allowance for doubtful accounts.

w/o:-

DR Allowance for doubtful account 45

CR A/R 45

recoveries:-

to restore account previously w/o

DR A/R 17

CR allowance for doubtful accounts 17 

to record cash collection on account

DR Cash 17

CR A/R 17

Do refer page F4-14 and F4-15 for above.

When recoveries are restored, they increase the A/R and when cash is collected, they reduce A/R, thus, no effect.

Recoveries would only affect Allowance account and thus, impact current year's allowance.

Let's prepare T-account:

A/R (before allowance) account

Beg balance              100     Cash collected 591

Credit sales               611     Cash - A/R

Allowance –                           Recovered               17

A/R Recovered         17     Allowance a/c

                                           - bad debts w/o        45

                                          Ending balance         75

I got it, I was missing the "restoration" J/E. How embarrased :(  I should know that, this is Acct I.

Thank you guys.