Week 7 Answer Key

Accounts Receivable (AR) (Return to Syllabus)

Detailed Instructor Answer Key — Invoicing, cash receipts, customer deposits, AR aging, and collections.

Support my Free Online Educational Resource Center for Accounting Students (LucaPacioli123.com) website!

Thank you,
Salvador Soto Jr, MSA

Concept 1

Key AR Definitions — Answer Key

Accounts Receivable (AR): Amounts owed by customers for credit sales; reported as a current asset.

Credit Sale vs Cash Sale: Credit sales create AR; cash sales do not.

Customer Deposits / Unearned Revenue: Cash collected before goods/services are provided; recorded as a liability until earned.

Concept 2

Invoice Preparation — Sample Solution

Scenario: March 5 sale of 20 units at 50 each plus 8% sales tax to Customer Alpha, terms Net 30.

Line total = 20 × 50 = 1,000
Sales tax (8%) = 1,000 × 0.08 = 80
Total invoice = 1,000 + 80 = 1,080

Journal entry:

Accounts Receivable – Customer Alpha .... Dr 1,080
    Sales Revenue .................................. 1,000
    Sales Tax Payable ...............................   80

Students’ invoices should include date, invoice number, customer details, item descriptions, tax, and total, along with correct due date based on Net 30 terms.

Concept 3

Cash Receipts & Payment Application — Answer Key

A. Full Payment

Customer Alpha pays 1,080 in full.

Cash ......................................... Dr 1,080
    Accounts Receivable – Customer Alpha ........ 1,080

B. Partial Payment

Customer Bravo owes 900; pays 500.

Cash ........................................ Dr 500
    Accounts Receivable – Customer Bravo ........ 500

Remaining balance: 400.

C. Overpayment

Customer Charlie owes 750 but pays 800.

Cash ........................................ Dr 800
    Accounts Receivable – Customer Charlie ...... 750
    Customer Credits (or Unearned Revenue) ......  50

D. Short Pay

Customer Delta owes 600 but pays 570 due to a disputed 30.

Cash ........................................ Dr 570
Sales Returns & Allowances (or Adjustment) . Dr  30
    Accounts Receivable – Customer Delta ........ 600

Concept 4

Customer Deposits & Unearned Revenue — Answer Key

Deposit received: Customer Echo pays 400 in advance.

Cash ......................................... Dr 400
    Unearned Revenue (Customer Deposits) ........ 400

Revenue earned later:

Unearned Revenue ............................ Dr 400
    Service Revenue .............................. 400

Students must show that deposits are liabilities until the underlying goods or services are provided.

Concept 5

AR Subledger & Control Account — Answer Key

Customer Alpha

Date	Description	Debit	Credit	Balance
Mar 5	Invoice #1050	1,080		1,080
Mar 28	Payment Check #432		1,080	0

Customer Bravo

Date	Description	Debit	Credit	Balance
Mar 3	Invoice #2002	900		900
Mar 20	Payment		500	400

The total of all customer balances in the AR subledger must equal the balance in the Accounts Receivable control account in the general ledger.

Concept 6

AR Aging Report — Answer Key

Customer	Current	1–30	31–60	61–90	Total
Alpha	0	0	0	0	0
Bravo	0	400	0	0	400
Delta	600	0	0	0	600
Foxtrot	0	0	800	0	800
Golf	0	0	0	350	350

Interpretation:

Foxtrot (31–60) and Golf (61–90) require priority collection efforts.
Bravo (1–30) should be monitored and contacted soon if not paid.
Delta is current; no immediate issue.

Concept 7

Collections Strategy — Answer Key

Expected steps from students:

Friendly reminder near due date.
Second notice when invoice moves into past-due status.
Phone call to address disputes and arrange payment plans.
Final notice with possible late fees and warning of credit hold.
Escalation to credit hold, collections agency, or legal channels for long-overdue accounts.

Answers should reflect professional, respectful communication and alignment with a written collection policy.

Homework

Homework & Activities — Solution Highlights

Customer Setup: Correct completion of names, addresses, terms, and credit limits; identification of missing tax or resale certificates.

Invoice Preparation: Accurate calculations of quantities, unit prices, taxes, and totals; correct due dates based on terms.

Cash Receipts Journal: Proper debit to Cash and credit to AR – specific customers; correct application to invoice balances.

AR Aging: Correct aging of balances and reasonable explanation of which accounts should be prioritized for follow-up.

Discussion

Discussion Prompt — Model Answer

Accurate and timely invoicing is essential because it starts the collection process and ensures customers know exactly what they owe and when it is due. Poor AR management leads to delayed collections, increased write-offs, cash shortages, and strained customer relationships. It also makes cash flow forecasting unreliable and can prevent the business from paying its own obligations on time.

Summary

Week 7 Summary — Instructor Version

By the end of Week 7, students should be able to set up customer accounts, create accurate invoices, record and apply customer payments, prepare AR aging reports, and understand the foundations of collections. Strong AR practices protect cash flow and support healthy customer relationships.

In later weeks, these concepts can be extended to bad debt, allowances, and more advanced revenue recognition topics.