In the first year of operations, 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.Required:a) What amount of cash was collected in Year 1?b) What amount of uncollectible accounts expense was recognized in Year 1?
What will be an ideal response?
a) $0 beginning accounts receivable balance + $220,000 revenue - $15,100 ending accounts receivable balance = $204,900 cash collected
b) $220,000 revenue × 3% = $6,600 of uncollectible accounts expense
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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