Question

In: Accounting

As an audit supervisor in an international public accounting firm, you are in charge of the...

As an audit supervisor in an international public accounting firm, you are in charge of the audit of several firms with 31 March year-ends. The financial statements of these firms are prepared in compliance with U.S GAAP, and are expected to be authorized for issue in early June 2017. Your audit juniors on the job have approached you for advice on the following case:

Auto Arrow (AA) does not maintain a proper accounting system. A main bulk of its existing source documents were destroyed in a fire. Based on available records and contacts with its customers and also with reference to its 2015/2016 financial statements, it managed to provide the following information for the 2016/2017 financial year:

Balance at 1 April 2016

Balance at 31 March 2017

Accounts Receivable

$500,000

$520,000

Allowance for Doubtful Accounts

$60,000

$80,000

A additional information

  1. Sales returns during the year amounted to $6,000.
  2. Cash received from its customers = $920,000 of which $50,000 related to an advance payment made by Customer L for goods to be delivered in the financial year 2017/2018.
  3. $30,000 of Bad Debt Expense is recognized in the financial year 2016/2017 profit and loss.

The accountant is unsure of how to determine the gross sales revenue for the year. Assume all sales are on credit.

Required: Determine the gross sales revenue for the financial year 2016/2017.

Solutions

Expert Solution

Answer

Gross sales $        906,000

Calculated as following

Account receivable
Beginning balance $        500,000 Cash = $920000-50000 = $        870,000
Allowances for bad debts(Write off) $          10,000
Sales Revenue (Gross) (balancing figure) $        906,000 Sales return $            6,000
Ending balance $        520,000
Total $    1,406,000 Total $    1,406,000

or we can write as

Write off = beginning balance of allowances for bad debts + bad debt expense - ending balance

= $60000+30000-80000

= $10000

Gross sale = Ending balance+cash received+write offs+returns- beginning balance
Gross sale = $520000+870000+10000+6000-500000 = $906000

Hit Thumbs up if satisfied

Have any query mention in comment section please

Thank you


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