Question

Microsoft develops, produces, and markets a wide range of computer software, including the Windows operating system. On its recent financial statements, Microsoft reported the following information about net sales revenue and accounts receivable (amounts in millions).

Current Year Prior Year
Accounts receivable, net of
allowances of $333 and $375 $14,987 $13,014
Net revenues 69,943 62,484
According to its Form 10-K, Microsoft recorded bad debt expense of $14 and did not reinstate any previously written-off accounts during the current year.
Required:
1. What amount of bad debts was written off during the current year?
2. Assuming that all of Microsoft's sales during the period were on open account, compute the amount of cash collected from customers for year 2.

Answer 1

Allowance for Doubtful Account

Accounts written off $56 Beginning balance $375

[$375+$14-$333]

Bad debt expense $14

Ending balance $333

Accounts Receivable (Gross)

Beginning balance $13,389 Accounts written off $56

[$13014+$375]

Net sales revenue $69,943 Cash collected $67,956

[$13389+$69943-$56-$15320]

Ending balance $15,320

[$14987+$333]