One of Fresh Mart's competitors, Vege Mart has always used the Direct Write-off method to account for uncollectible account expense. The company's revenues, uncollectible write offs, and year-end receivables for 2013 were as follows:
|
Year
|
Revenue
|
Write-offs
|
Receivables at Year-End
|
|
2013
|
RM380,000
|
RM10,000
|
RM22,000
|
The business is applying to Maybank for a loan, and the loan officer has requested for figures based on the Allowance method of accounting for uncollectible accounts expense. In the past, uncollectible accounts expense is approximately 5% of revenues.
You are required to compute and provide the following information to the banker:
1) How much more or less would net income be for 2013 if Vege Mart were to use the Allowance method for uncollectible account expense? Please use the percentage-of-sales method.
2) How much of the receivables balance at the end of 2013 does SuperSaver actually expect to collect? (Disregard beginning accounts receivable balance for the purpose of this question).