How is accounts receivable typically calculated on a company's balance sheet?(5 Points)Total revenue - Bad debt expenseTotal credit sales + Allowance for doubtful accounts C2 . M-PESA Africa InternalBeginning accounts receivable + Credit sales - Cash collectionsEnding accounts receivable - Cash collections
Question
How is accounts receivable typically calculated on a company's balance sheet?(5 Points)Total revenue - Bad debt expenseTotal credit sales + Allowance for doubtful accounts C2 . M-PESA Africa InternalBeginning accounts receivable + Credit sales - Cash collectionsEnding accounts receivable - Cash collections
Solution
Accounts receivable is typically calculated on a company's balance sheet using the following steps:
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Start with the beginning balance of accounts receivable. This is the amount of money owed to the company by its customers from previous billing periods.
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Add the total credit sales for the current period. Credit sales are those sales where the company has provided goods or services but has not yet received payment.
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Subtract the cash collections during the current period. These are payments received from customers for previous credit sales.
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The result is the ending balance of accounts receivable. This represents the current amount of money owed to the company by its customers.
So, the formula is: Beginning accounts receivable + Credit sales - Cash collections = Ending accounts receivable.
Note: The total revenue, bad debt expense, and allowance for doubtful accounts are not directly used in the calculation of accounts receivable, but they are related concepts in the broader context of managing a company's receivables.
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