BACHELOR OF BUSINESS ADMINISTRATION

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BUSINESS ADMINISTRATION

FINANCIAL ACCOUNTING

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
A COMPANY reported current net receivables on December 31, Year 2 which consisted of the following:Trade accounts receivable 930, 000Allowance for uncollectible accounts 20, 000Claim against shipper for goods in transit on November Year 1 30, 000Selling price of unsold goods sent by Paolo on consignment at 130% of cost and notincluded in the ending inventory 260, 000Security deposit on lease of warehouse used in storing inventories 300, 000What is the correct total of current net receivables on December 31, Year 2?
A
1, 500, 000
B
1, 200, 000
C
1, 240, 000
D
940, 000
Explanation: 

Detailed explanation-1: -An allowance for doubtful accounts is a contra account that nets against the total receivables presented on the balance sheet to reflect only the amounts expected to be paid. The allowance for doubtful accounts estimates the percentage of accounts receivable that are expected to be uncollectible.

Detailed explanation-2: -Net receivables are shown as an aggregated total on the company’s balance sheet. The gross receivables are listed first and are followed by the allowance for doubtful accounts. The allowance for doubtful accounts is a contra-asset account, as it reduces the balance of an asset.

Detailed explanation-3: -Net trade receivables are calculated by subtracting sales discounts, returns, allowances, and collections from total credit sales for the period.

Detailed explanation-4: -Trade receivables are defined as the amount owed to a business by its customers following the sale of goods or services on credit. Also known as accounts receivable, trade receivables are classified as current assets on the balance sheet.

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