A is corrent. Cash collected from customers can be computed using the following formula:Sales – [End AR – (Beg. AR – Write-offs)] = CollectionsIn the formula above, sales is adjusted for the change in AR, exclusive of write-offs, because write-offs represent sales (and AR) which will never be collected in cash. In this problem, no mention is made of write-offs, so the formula can be rewritten as follows:| Sales | – | (End AR – Beg. AR) | = | Collections | | Sales | – | Increase in AR | = | Collections | | $75,000 | – | $5,000 | = | $70,000 |
B is incorrect. Cash collected from customers can be computed using the following formula:Sales – [End AR – (Beg. AR – Write-offs)] = CollectionsIn the formula above, sales is adjusted for the change in AR, exclusive of write-offs, because write-offs represent sales (and AR) which will never be collected in cash. In this problem, no mention is made of write-offs, so the formula can be rewritten as follows:| Sales | – | (End AR – Beg. AR) | = | Collections | | Sales | – | Increase in AR | = | Collections | | $75,000 | – | $5,000 | = | $70,000 |
C is incorrect. Cash collected from customers can be computed using the following formula:Sales – [End AR – (Beg. AR – Write-offs)] = CollectionsIn the formula above, sales is adjusted for the change in AR, exclusive of write-offs, because write-offs represent sales (and AR) which will never be collected in cash. In this problem, no mention is made of write-offs, so the formula can be rewritten as follows:| Sales | – | (End AR – Beg. AR) | = | Collections | | Sales | – | Increase in AR | = | Collections | | $75,000 | – | $5,000 | = | $70,000 |
D is incorrect. Cash collected from customers can be computed using the following formula:Sales – [End AR – (Beg. AR – Write-offs)] = CollectionsIn the formula above, sales is adjusted for the change in AR, exclusive of write-offs, because write-offs represent sales (and AR) which will never be collected in cash. In this problem, no mention is made of write-offs, so the formula can be rewritten as follows:| Sales | – | (End AR – Beg. AR) | = | Collections | | Sales | – | Increase in AR | = | Collections | | $75,000 | – | $5,000 | = | $70,000 |
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