st transaction Accounting for Receivables and Inventory Exercise 5-5 Analyzing f
ID: 2328813 • Letter: S
Question
st transaction Accounting for Receivables and Inventory Exercise 5-5 Analyzing financial statement effects of accounting for uncollectible accounts using the percent of revenue allowance method Grover Inc. uses the allowance method to account for uncollectible accounts expense. Grover Inc. experienced the following four accounting events in 2018: 1. Recognized $92.000 of revenue on account. 2. Collected $78,000 cash from accounts receivable. 3. Wrote off uncollectible accounts of $720. 4 Recognized uncollectible accounts expense. Grover estimated that uncollectible accounts expense Cash Flow NA nce will be 1 percent of sales on account. Required Show the effect of each event on the elements of the financial statements, using a horizontal state- ments model like the one shown here. Use + for increase, - for decrease, and NA for not affected. In the cash flow column, indicate whether the item is an operating activity (OA), investing activity (TA), or financing activity (FA). The first transaction is entered as an example. Event No. AssetsLiab. Equity Rev.Exp Net Inc.Cash Flow NA NA NA company Exercise 5-6 Effect of recovering a receivable previously written offExplanation / Answer
Event No.
Assets
=
Liab.
+
Equity
Rev.
-
Exp.
=
Net income
Cash flow
1.
+
=
NA
+
+
+
-
NA
=
+
NA
2.
+ / -
=
NA
+
NA
NA
-
NA
=
NA
+ OA
3.
+ / -
=
NA
+
NA
NA
-
NA
=
NA
NA
4.
-
=
NA
+
-
NA
-
+
=
-
NA
Explanation;
Event No. 1; $92000 revenue on account will result into an increase of assets and equity. Apart from this it will also result into an increase in revenue and net income. But no effect on cash flow.
Event No. 2; Collected $78000 from account receivable will result into an increase of cash and decrease of account receivable. Apart from this it will not result into any effect on equity, revenue but will result inot cash flow from operating activity.
Event No. 3; Wrote of uncollectible accounts of $720 will affect only assets section and no impact on other items. It will decrease accounts receivable by $720 but also decrease allowance for doubtful accounts by $720. That is why only assets will incease or decrease by same amount. Cash flow will not be affected by this transaction.
Event No. 4; Uncollectibel account expense will decrease accounts receivable by $920, expenses will be increased by $920. Apart from this it will decrease by net income by $920 and stockholders’ equity by same amount. This event will not affect cash flow.
Event No.
Assets
=
Liab.
+
Equity
Rev.
-
Exp.
=
Net income
Cash flow
1.
+
=
NA
+
+
+
-
NA
=
+
NA
2.
+ / -
=
NA
+
NA
NA
-
NA
=
NA
+ OA
3.
+ / -
=
NA
+
NA
NA
-
NA
=
NA
NA
4.
-
=
NA
+
-
NA
-
+
=
-
NA
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