During its first year of operation, John's Repair Service recognized $220,000 of service revenue on account. The ending accounts receivable balance was $15,100. Jake estimates that 3% of sales on account will not be collected; no accounts receivable had been written off by year end. Assume there were no other transactions affecting accounts receivable.a) What amount of cash was collected during the year?b) What amount of uncollectible accounts expense was recognized during the year?
What will be an ideal response?
a) Ending accounts receivable of $15,100 = Beginning accounts receivable of $0 + Services on account of $220,000 ? Cash collected (the unknown) ? Write-offs of $0
Cash collected = $0 + $220,000 ? $15,100 = $204,900
b) Uncollectible accounts expense = Services on account of $220,000 × 3% = $6,600
John's estimates uncollectible accounts expense at the end of the year as a percentage of revenue. Recognizing the $6,600 uncollectible accounts expense will also increase the allowance for doubtful accounts.
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