Question

Analyzing Accounts Receivable Changes The comparative balance sheets of Sloan Company reveal that accounts receivable (before deducting allowances) increased by $15,000 in 2013. During the same time period, the allowance for uncollectible accounts increased by $2,100. If sales revenue was $120,000 in 2013 and bad debts expense was 2.5% of sales, how much cash was collected from customers during the year?

Answer 1

Answer:

Cash was collected from customers during the year was $ 104,100

Explanation:

Sales revenue = $120,000

Bad debt expense = 2.5% of sales

Therefore,  Bad debt expense = $120,000 x 2.5% = $3,000

Thus, allowance for uncollectible accounts should have increased by $3,000. But it increased by $2,100.

Therefore, uncollectible accounts receivable of $900 ($3,000 - $2,100) were written off during that year.

Cash collected from customers  = Sales revenue - Increase in accounts receivable - Uncollectible accounts written off

= $120,000 - $15,000 - $900

= $104,100