Question

Exercise 2-1A Effect of collecting accounts receivable on the accounting equation and financial statements LO 2-1, 2-3

Holloway Company earned $7,600 of service revenue on account during Year 1. The company collected $6,460 cash from accounts receivable during Year 1.

Required
Based on this information alone, determine the following for Holloway Company. (Hint: Record the events in general ledger accounts under an accounting equation before satisfying the requirements.) (Enter any decreases to account balances with a minus sign.)
a. The balance of the accounts receivable that would be reported on the December 31, Year 1, balance sheet.
b. The amount of net income that would be reported on the Year 1 income statement.
c. The amount of net cash flow from operating activities that would be reported on the Year 1 statement of cash flows.
d. The amount of retained earnings that would be reported on the Year 1 balance sheet.

Answer 1

a.
Balance in accounts receivable at December 31	Sales on account - Cash collected
Balance in accounts receivable at December 31	7600-6460
Balance in accounts receivable at December 31	$1,140
b.
Amount of net income reported in income statement would be revenue earned of $7,600
c.
Net cash flow from operating activities would be cash collected of $6,460
d.
Retained earnings would increase by the amount of revenue earned of $7,600