Accounts receivable (A/R) result from sales of goods or services on credit. Changes in the A/R balance are affected by various transactions during the year. A/R beginning balance is increased by credit sales and the reinstatement of written-off accounts. It is decreased by accounts written off and cash collections from customers (including collections from recovered accounts).

Although GAAP requires the accrual basisAn accounting method required by GAAP that recognizes revenue when earned and expenses when incurred, regardless of when cash is exchanged. of accounting because it provides more relevant information than the cash basisAn accounting method that recognizes transactions based on the timing of cash receipts and disbursements instead of reporting income when earned and expenses when incurred., there are times when it may be necessary to convert from the accrual basis to a cash basis (eg, direct method of the statement of cash flows).

In this case, analyzing the transactions that affect accounts receivable, Bee Co. can solve for cash collected from customers as follows:

Note: The difference between the ending A/R balance and beginning A/R balance will result in either an increase in A/R, which is deducted, or a decrease in A/R, which is added.

Things to remember:
Accounts receivable is increased by credit sales and reinstatement of accounts written off. It is decreased by write-offs and cash collections. The amount of cash collected can be determined by analyzing the accounts affecting accounts receivable.