This one is driving me nuts...
How selling of $100 of A/R for $70 in cash impacts the three financial statements? (assuming no tax)
IS: -30 (loss on A/R)
Cash: -30 + 100 (decrease in A/R) = +70
B/S= +70 (Cash) - 100 (decrease in A/R) = -30 ...matches with -30 from I/S.
Is this correct?
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sorry don't get the selling of 100$ 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
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