Exercise-6 (Cash received from customers – formula approach)

By: Rashid Javed | Updated on: October 24th, 2021

Exercise-6(a):

The Alpha company prepares its statement of cash flows using direct method. It requests you to calculate cash received from customers during the year 2016. For this purpose, the following information has been extracted from the trial balance of the company.

  • Accounts receivable on December 31, 2015: $62,000
  • Accounts receivable on December 31, 2016: $70,000
  • Allowance for doubtful accounts on December 31, 2015: $2,100
  • Allowance for doubtful accounts on December 31, 2016: $3,200
  • Sales for the year 2015: $155,300
  • Sales for the year 2016: $126,500

The company sells goods on credit. For the year 2016, bad debts expense were $7,500 and accounts amounting to $6,400 were written-off.

Required: Compute cash received from customers to be reported in the statement of cash flows for the year 2016.

Solution:

exercise-6-socf-img1

*Closing balance of accounts receivable – (Opening balance of accounts receivable – Write-offs)
= $70,000 – ($62,000 – $6,400)
= $14,400

Note: The change in accounts receivable has been deducted from the sales because accounts receivable have increased during the period.

Exercise-6(b):

The following information belongs to Western company:

  • Accounts receivable on December 31, 2015: $90,000
  • Accounts receivable on December 31, 2016: $75,000
  • Allowance for doubtful accounts on December 31, 2015: $3,550
  • Allowance for doubtful accounts on December 31, 2016: $4,100
  • Sales for the year 2015: $225,300
  • Sales for the year 2016: $346,500

The bad debts expense was $7,800 and write-offs totaled to $7,250 during the year 2016. All sales are made on credit.

Required: Compute total amount of cash received from customers by Western company during the year 2016.

Solution:

exercise-6-socf-img2

*(Opening balance of accounts receivable- Write-offs) – Closing balance of accounts receivable
= ($90,000 – $7,250)  – $75,000
= $7,750

Note: The change in accounts receivable has been added to the sales because accounts receivable have decreased during the period.

A D V E R T I S E M E N T
3 Comments on Exercise-6 (Cash received from customers – formula approach)
  1. SIMON

    CAN I HAVE BRIEF SHORT EXPLANATION ABOUT CASH RECEIVED FROM CLIENTS

  2. hải yến

    Oct 02: received $ 2,000 cash from customer on account
    0ct 10: purchased supplies on account $ 1,500
    Oct 15: paid salaries incurred in october $ 1,000
    Oct 20: received $ 700 from customer for future service
    Oct 31: Adjusment data consist of:
    1, supplies on hand $ 2,000
    2, unearned service revenue of $ 1,500 is earned
    can you help me

  3. Keturah Garsuah

    Thank You!!

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