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On 1 January 20X3 Tipton’s trade receivables were $10,000. The following relates to the
year ended 31 December 20X3:
$
Credit sales 100,000
Cash receipts 90,000
Contra with payables 800
Discounts received 700
Cash receipts include $1,000 in respect of a receivable previously written off.
What was the value of receivables at 31 December 20X3?
A $19,300
B $20,200
C $20,800
D $20,700
The answer is B.
Why do we take into consideration “cash receipt from debt previously written off” .As I know we mustn’t add it to receivables.And only deduct it from irrecoverable debts when we calculate expense for the year?Is it true?For cash received from a debt previously written off, the entry is to debit cash and credit irrecoverable debts expense. It does not affect receivables (because the debt is not included in receivables) and is effectively a negative expense.
Therefore only 89,000 of the cash received is credited to receivables, so the final balance on receivables is 10,000 + 100,000 – 89,000 – 800 = 20,200.
I do suggest that you watch my free lectures – this is all explained in the lectures.
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