Question

As the manager of the accounts receivable department for Beavis Leather Goods, Ltd., you recently noticed that Kelly Collins, your accounts receivable clerk who is paid $1,200 per month, has been wearing unusually tasteful and expensive clothing. (This is Beavis's first year in business.) This morning, Collins drove up to work in a brand new Lexus. Naturally suspicious by nature, you decide to test the accuracy of the accounts receivable balance of $132,000 as shown in the ledger. The following information is available for your first year (precisely 9 months ended September 30, 2010) in business.

Collections from customers .......................$188,000

Merchandise purchased................................360,000

Ending merchandise inventory........................90,000

Goods are marked to sell at 40% above cost. Assuming all sales were made on account, compute the ending balance that should appear in the ledger, noting any apparent shortage. What would you do with this information? Show your work.

Answer 1

Opening Merchandise is 0

Merchandise purchased during the year is 360,000

Ending merchandise inventory is 90,000

So, cost of merchandise sold is 0+360,000-90,000 = $270,000

Now Goods are sold at 40% above cost

So Sales Value is 270,000*1.4 = $378,000

Amount collected from customers is $188,000

So Ending balance in account receivable ledger should be $190,000

This shows that the balance reported in balance sheet is wrong.