Question

Adjusting Cash Flows for Changes in Accounts Receivable Marshall Inc. had beginning balances (January 1) of $200,000 and $5,000 for accounts receivable and the allowance for doubtful accounts, respectively. During the year, the company had the following transactions. Sales $900,000 Write-off of accounts 1,000 Cash collections on account receivable 850,000 Bad debt expense recorded 2,800 a. Determine the ending balance (December 31) in accounts receivable and the allowance for doubtful accounts. Accounts receivable, ending balance $ 249,000 Allowance for doubtful accounts, ending balance $ 6,800 b. Determine the adjustment to net income in the operating activities section in the statement of cash flows assuming the indirect method. Amount in the Operating Item Activities Section Increase in accounts receivable, net $ 49,000 x

I am having trouble understanding why the change in A/R is not 49,000. I have also tried (49,000) as well, and a number of other possible solutions. There must be something I am missing.

Assistance would be appreciated. Will rate quickly. Thank you.

Answer 1

You have to take net amount of accounts receivable while calculating differences. which means, Accounts receivable - Allowance for doubtful accounts.

Ending balance ($249,000 - $6,800) = $242,200

Less: Begining balance ($200,000-$5,000) = $195,000

Increase in accounts receivable = $47,200

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