[rolltide55]

Okay I know most of you are thinking that I am a moron….and I may be….but something that keeps stumping me is that there seems to be two different calculations in becker to get from cash to accrual and I can’t see why.

Example:

Cash received during the year

– beginning balance in AR because those were earned last year

+ ending balance in AR because those were earned this year

= accrual based revenue

Well then there are some multiple choice questions that require you to do a plug number.

Example using BASE acronym Beginning, Add, Subtract, Equals

B beginning rent receivable

A PLUG FOR BILLINGS ACCRUED

S <cash collections and write offs>

E equals ending rent receivable

The plug number is the answer for accrual revenue during the year. I have no idea when to use which one.

I will do a mathematical example (did not come from becker, I made it up)

FACTS:

Company reported rental revenue on its cash basis tax return for year = 700

Rent receivable at end of year 1 = 100

Rent receivable at end of year 2 = 200

Uncollectible rents written off during the fiscal year = 20

QUESTION: Under the accrual basis _______should report rental revenue of what?

this is the way I would think that one would solve the problem:

cash basis revenue 700

– rent receivable beginning <100>

+ rent receivable ending 200

– uncollectible written off < 20>

= accrual basis rental revenue for the year of 780

But this is how Becker is telling me to solve the problem

beginning of year rent receivable 100

+billings accrued X PLUG

– cash collections and writeoffs (700+20) 720

= ending receivable 200

so 100 + X – 720 = 200

100 + X = 920

X = 820

ANY HELP WOULD BE APPRECIATED! THANK YOU!

[mohanna81]

I have the same problem. But in my question I could solve it correctly by just adding the written off amount instead of deducting it (which makes no sense to me). I wonder why!

AUD - NINJA in Training
BEC - NINJA in Training
FAR - NINJA in Training
REG - NINJA in Training

CPA Here I come 

[IwannabeaCPA2017]

@rolltide, for the longest time I was having the same issue. But what really helped was JE.

DR: Cash 700
DR: Rent Receivable 100
CR: AFDA 20 ‘
CR: Rental income PLUG

In the beginning all I was doing was memorizing increase in CA is add Decrease in CA is subtract! Forget that BS!!

BEC- PASS (Expiring in DEC 2017)

REG- PASS (Expiring Feb 2018)

AUD- PASS (Expiring Oct 2018)

FAR- 65, 60, 59, 77!!! -GOD BLESS

If I can do it, anyone can do it!

 

[RB]

Your method is fine but you’re mixing up one key piece that they aren’t telling you in the answer

Those actual write off of uncollectibles in a period is not actually an expense, the expense comes when you increase allowance for doubtful accounts

So, cash basis of $700
Plus increase in AR of $100
Plus actual write offs because these reduce receivables but aren’t an actual expense in the period only the allowance accrued

Meaning actual ending receivables (if no allowance account is set up) increased by $120, but $20 were specifically written off, most likely the prior years balance.

This is not a perfect explanation but it is an important conceptual piece that will come up in several problems in one form or another. Wrap your head well around how the allowance and bad debt expense works versus when it’s written off

Hope that helps point you in the right direction at least. I’ll try to check back tomorrow if you need a better explanation (hard from the phone at the moment)

AUD - 95
BEC - 98
FAR - 98
REG - 91

Justin - reach out for more help

[Author]

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