2007 Reported revenue 137 A/c receivable balance began with 11 and ended with 16$.At the end of the year 2$ of receivables have been securitized so what is the cash collection from customers in 2007?
We start by pretending that we got $137. (Note: the dollar sign preceeds the number.)
Because our A/R balance increased by $5, we realize that we didn’t get all of the money: we collected only $137 – $5 = $132.
Because $2 have been securitized, we’re forced to admit that that didn’t come from our customers: of the $132 we collected, only $132 – $2 = $130 came from our customers.
But we’re still grateful.
Why isn’t the $2 part of the $5 increase in receivables? When the $2 in receivables were securitized didn’t that increase the receivales already by $2?
Because we sold them; they’re gone.
The $5 increase is receivables we still have; haven’t sold off yet.
Right, understood. Thanks.
as per me
Revenue= increase in A/R+ Cash collected- Increase in Unearned revenue+ write off
But why we add write off ?
To counterbalance a decrease in A/R.
If A/R remains the same, and we had $5 in write-off, then we really had an increase of $5 in A/R: $5 more revenue.