Uri Ltd uses the allowance method of accounting for bad and doubtful debts. Bad and doubtful debts expense shown in the income statement is $7000 and the amount of bad debts actually written off is $5000. If sales are $330 000 and customer's balances have increased by $15 000 over the period, calculate the amount to be shown in the statement of cash flows for receipts from customers.

Question

Quizplus · Accepted Answer

To calculate the receipts from customers, we need to adjust the increase in customer balances for the period by subtracting the amount of bad debts actually written off. 
Customer balances increase = $15,000
Less: Bad debts written off = $5,000
Adjusted increase in customer balances = $10,000
Sales = $330,000
Therefore, receipts from customers = Sales - Adjusted increase in customer balances + Bad debts written off
= $330,000 - $10,000 + $5,000
= $325,000
However, the bad and doubtful debts expense of $7,000 should be added back to this figure, since it is a non-cash expense that was deducted in arriving at net income.
 
Receipts from customers in the statement of cash flows = $325,000 + $7,000 = $332,000
Therefore, the correct answer is closest to C) $310,000.

Uri Ltd Uses the Allowance Method of Accounting for Bad