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Barclay had accounts receivable of $42,750 and $44,325 at 1 January 20X8 and 31 December 20X8 respectively. During 20X8, cash sales of $265,000 and credit sales of $362,750 were made, contras with the payables ledger control account amounted to $18,750 and discounts received totalled 22,685. Irrecoverable debts of $8,640 were written off during 20X8 and Barclay wishes to retain its allowance for receivables at 5% of total receivables.
What was the cash received by Barclay from credit customers during the year?A $336,935
B $352,535
C $329,850
D $333,785The answer is D. I did it correct though I had a question.
Why are allowance not affecting Account Receivable? Like Allowance do affect Irrecoverable debt and Irrecoverable debt decreases Account Receivable.Say the total receivables amounts to $100,000.
In there is a debt of $1,000 which is irrecoverable (ie we are certain it will not be received), and an amount of $5,000 about which we are uncertain if it will be received or not.
The $1,000 is written of and the debt is extinguished from the receivables ledger. The debtoe will no longer be pursued for payment.
The $5,000 requires an allowance against it. The amount still is shown in the receivables ledger and statements and letters will still be sent to the debtor; we haven’t completely given up on it.
The allowance does not affect the receivables ledger. It is set up in a separate account and on the SOFP the receivables will be shown as the net of the two accounts:
Receivables = 100,000 – 1,000 = 99,000
Allowance for receivables = 5,000
Amout of SOFP = 94,000
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