Exercise-7 (Cash received from customers – t accounts approach)

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

In exercise-6 we used formula approach to calculate cash received from customer. We can also compute this figure by making an accounts receivable t-account. In this exercise, we shall use the data from exercise-6 and calculate cash received from customers during a period using t-accounts approach.

The following information belongs to Alpha 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: Find out the amount of cash collected from customer using t accounts approach.

Solution:

exercise-7-socf-img1

*Balancing figure – the cash received from customers.

A D V E R T I S E M E N T
6 Comments on Exercise-7 (Cash received from customers – t accounts approach)
  1. Ester

    Why are we leaving bad debts in this calculation ? Are we not supposed to credit it since its decreasing our trade receivable account ?

    1. Accounting For Management

      If your question is about the bad debts expense of $7,500, here is the answer:

      (1). Under allowance method when we record bad debts expense (also known as uncollectible accounts expense), we make the following journal entry:

      Bad debts/uncollectible accounts expense —- Dr.
      Allowance for doubtful accounts —- Cr.

      We credit allowance for doubtful accounts account and not the accounts receivable account.

      The bad debts expense figure of $7,500 has been ignored because it does not affect the balance of accounts receivable account.

      (2). When we write-off the account of a receivable, we make the following journal entry:

      Allowance for doubtful accounts —- Dr.
      Accounts receivable account —- Cr.

      This entry affects the account receivable account. The accounts amounting $6,400 written-off during the period have therefore been credited to the accounts receivable account in the above example.

  2. Ghulam Abbas

    Above given clarification for treating allowance for bad debts is right.

  3. george

    why we did not add the amount of 7500 in the calculation as it increases the allowance (cr )

    1. Accounting For Management

      @George
      There already exists an answer to your question regarding $7,500. Please see the reply to first comment.

  4. lima

    hi
    i have question that confused me , sorry to disturb you .
    what will be the treatment of allowance on doubtful account DEC 2015 & 2016 in this question , why this part is ignored. ?

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