This one is driving me nuts...
How selling of $100 of A/R for $70 in cash impacts the three financial statements? (assuming no tax)
IS: -30 (loss on A/R) Cash: -30 + 100 (decrease in A/R) = +70 B/S= +70 (Cash) - 100 (decrease in A/R) = -30 ...matches with -30 from I/S.
Is this correct?
sorry don't get the selling of 100$ of A/R for 70$ in cash
dud you mean 100$ sales, 70 on cash, 30 on credit?
He probably means factoring his receivables
Everything is correct. Cash would go up by +70 - 100 decrease in A/R=-30 for assets, since net income goes down by 30, your retained earnings will go down by 30 and the B/S will balance.
Yes, this is correct.
The best way to think about these types of questions is what the debits/credits would be to each account on the B/S. B/S then flows to I/S, and ultimately cash flow.
Debit: Cash 70 Debt: Expense 30 Credit: A/R 100
B/S: cash increases by $70. expense increases by $30. A/R decreases by $100. Net effect at period end will be retained earnings decrease of $30.
I/S: loss on A/R of $30 would increase operating expenses. If for some reason management deemed it a material one-time item, it would fall to affect EBIT in the same manner and magnitude.
Cash flow: $70 cash received from sale of the receivable would be classified as operating activity, offset by the reduction in A/R for a net effect of $30 reduction in operating cash flow
Architecto unde repellat numquam ut est nihil vel. Vel sit harum veniam dicta. Quis quasi adipisci ratione consequatur architecto deserunt. Eius aliquam voluptatibus ullam aliquam delectus officia. Sint aut occaecati delectus necessitatibus.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...