Hi guys,
Please help me here if possible.
Zeta Co. reported sales revenue of $4,600,000 in its Income Statement for the year ended December 31, 20X1. Additional information is as follows:
12/31/X0 12/31/X1
Accounts receivable $1,000,000 $1,300,000
Allowance for uncollectible accounts (60,000) (110,000)
Zeta wrote off uncollectible accounts totaling $20,000 during 20X1. Under the cash basis of accounting, Zeta would have reported 20X1 sales of:
Question – why should we subtract $20,000? Bad debt increases expense, so decreases net income (accrual basis). In my opinion, to convert accrual net income to cash net income, we have to add 20,000.
Thank you for all your help.