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Ending Accounts Receivable balance

Hello, I am completely lost on this problem; I am having trouble wrapping my head around it. Thank you.

As the manager of the accounts receivable department for Vicki Maher Leather Goods, Ltd., you recently noticed that Percy Shelley, your accounts receivable clerk who is paid $1,200 per month, has been wearing unusually tasteful and expensive clothing. (This is Vicki Maher's first year in business.) This morning, Shelley drove up to work in a brand new Lexus.

Naturally suspicious by nature, you decide to test the accuracy of the accounts receivable balance of $132,000 as shown in the ledger. The following information is available for your first year (precisely 9 months ended September 30, 2007) in business.

(1) Collections from customers $198,000
(2) Merchandise purchased 360,000
(3) Ending merchandise inventory 90,000
(4) Goods are marked to sell at 40% above cost.


Assuming all sales were made on account, compute the ending accounts receivable balance that should appear in the ledger, noting any apparent shortage. Then, draft a memo dated October 3, 2007, to John Castle, the branch manager, explaining the facts in this situation. Remember that this problem is serious, and you do not want to make hasty accusations.

Solution Preview

We need to calculate what should be the ending balance in the accounts receivable and check that against $132,000 which is being shown now.

Total merchandise purchased is $360,000 and $90,000 is in inventory. This implies that 360,000-90,000=$270,000 worth ...

Solution Summary

The solution explains how to calculate the ending Accounts Receivable balance given the details of sales and collections.