question archive Zoe's business starts trading on 1 January and makes total sales during the year to 31 December of £700,000
Zoe's business starts trading on 1 January and makes total sales during the year to 31 December of £700,000
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Zoe's business starts trading on 1 January and makes total sales during the year to 31 December of £700,000. However, this revenue includes a sale of £30,000 to Mr Fox, who has disappeared without trace and hasn't paid for his goods. Zoe has trade receivables totalling £140,000 as at 31 December. No adjustments have yet been made as a result of the disappearance of Mr Fox. What figure will be shown for sales in Zoe's income statement for the year ended 31 December, and for trade receivables in her balance sheet as at that date? 0 Sales Receivables 670,000 140,000 0 Sales Receivable 700,000 110,000 0 Sales Receivable 670,000 110,000 0 Sales Receivable 700,000 140,000
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Answer: Sales- 700,000; Receivable - 110,000
Step-by-step explanation
Revenue is recognized on the date the sale occurs and then included in a firm's gross revenue on the income statement. So, when the sale took place it is only right Zoe recognized the sale revenue.
Under the direct write off method, when a small business determines an invoice is uncollectible they can debit the Bad Debts Expense account and credit Accounts Receivable immediately. This eliminates the revenue recorded as well as the outstanding balance owed to the business in the books and thus reduce the accounts receivable.
