I wasn't familiar with the BASE formula by name, but Googled it, and I guess I sorta would use it, kinda. 😐 I'm not big on special terms and mnemonics and stuff like that, and so I selected review materials (Wiley) that also weren't big on them. So, I didn't learn anything as the “base” formula. But, the way I'd look at it is “What's the change in receivable?” (End – Beginning) “Does that change mean cash was more or less than accrual?” (Cash was less, because receivable went up, so more revenue was accrued them received)
So far: $260,000
Then one by one with any other adjustments:
“What rent was collected?” (The change in receivable is added to this, since the receivable increased; if the receivable had decreased, it would be subtracted)
Now: $2,210,000 + 260,000 = $2,470,000
“What effect would writing off $30k have on cash basis revenue?” (None) “If this write-off was removed already from the ending receivable, then what adjustment needs to be made to revenue to make the total be right?” (Add it)
So: $2,470,000 + 30,000 = $2,500,000
Reason for adding it is because you're figuring what amount of revenue is needed to get the right ending receivable. It's a loss of income, but revenue isn't affected by it. You're saying “How many $1 widgets do I need to have sold to have people still owe me for 1,060,000 of them?”, not “How much money did I make?” So, it's weird to add bad debts to revenue, but it's because you're backing into it to find a revenue number. It's similar to saying “After my payday and after paying my car payment for $250, I have $500 left in the bank, how much was my paycheck?” Well, the car payment is an expense, but you have to add it to the $500 to find out how much the paycheck was, and get $750. But if your started with $50 in your bank account, then got paid and spent $250 and had $500 left, then your paycheck was just $700. Etc etc.
Now truthfully, the write-off I'd have to figure both ways and see which way came out right lol. So, I'd try $2,440,000 & $2,500,000, and then see if I could calculate the ending receivable:
800k – 30k + 2,440k – 2,210k = 1,000k –> Nope, doesn't equal the right ending
800k – 30k + 2,500k – 2,210k = 1,060k –> Yep, that gets me what I need
Sure, it'd be better if I knew right up which way to do the plus or minus, but at least I know a way around it.
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P. S.
– **Rent Revenue for Cash Collected for Yr 2 ($2,210,000)+ uncollectiable (30,000)= Cash actually collected in Year 2**
That's not actual cash collected. Just the $2210k is actual cash collected; the bad debt is removed from receivable and there's no reference to it ever being collected. Perhaps that's where your confusion is, if you thought it was collected?
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