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The revenue generated by barker was $2million and it’s account receivable were equivalent to 5% of revenue. Following a review at the year ends , barker required an allowance for receivable of $4000 which would make the allowance one-third higher than the current allowance.
How will the profit for the period be affected by change in allowance?The allowance had been 3,000.
1/3 higher brings that to 4,000.
The allowance has increased by 1,000 and this will be charged against profits, so lowering them by 1,000.
4000 is 1/3 higher than the previous year, so the previous tear must have been 3000:
3000 + 1/3 x 3000 = 4000
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