Hannah’s Healing Herbs Ltd has Accounts Receivable of $14 000 at 1 July 2022, and $24 000 at 30 June 2023. Sales revenues (all on credit) were $600 000 for 2023. Bad debts written off directly against Accounts Receivable were $2000 in 2023.Task: What is the amount of cash receipts from customers in 2023? Construct T accounts to determine your answer
Question
Hannah’s Healing Herbs Ltd has Accounts Receivable of 24 000 at 30 June 2023. Sales revenues (all on credit) were 2000 in 2023.Task: What is the amount of cash receipts from customers in 2023? Construct T accounts to determine your answer
Solution
To calculate the cash receipts from customers, we need to understand the flow of accounts receivable. Here's how you can do it:
Step 1: Start with the beginning balance of Accounts Receivable. This is given as $14,000 on 1 July 2022.
Step 2: Add the total credit sales for the year. The total credit sales for 2023 are given as $600,000.
Step 3: Subtract any bad debts written off directly against Accounts Receivable. The bad debts written off in 2023 are given as $2,000.
Step 4: Subtract the ending balance of Accounts Receivable. The ending balance on 30 June 2023 is given as $24,000.
Now, let's put these steps into a T-account:
Accounts Receivable
| Debit | Credit | | 600,000 (credit sales) | | | | 24,000 (ending balance) |
Now, calculate the cash receipts:
= Beginning balance + Credit sales - Bad debts - Ending balance = 600,000 - 24,000 = $588,000
So, the amount of cash receipts from customers in 2023 is $588,000.
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