1. Tosh and Sons Inc. uses the percentage of receivables approach to estimate its uncollectible accounts. The company had sales of $100,000 at the end of its financial year on June 30, 2020. The allowance for doubtful debts account had a debit balance of $400, the accounts receivable balance was $30,000at year end and the company estimates the uncollectible percentages as follows: Current (1 - 30 days) $15,000 0.5% 31 - 60 days $10,000 2.0% 61 - 90 days $3,000 10.0% Over 90 days $2000 60.0% Required: Calculate the bad debt expense at June 30, 2020. Prepare the necessary journal entry to record the bad debt expense for the year.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
1. Tosh and Sons Inc. uses the percentage of receivables approach to estimate its
uncollectible accounts. The company had sales of $100,000 at the end of its financial year on June 30, 2020. The allowance for doubtful debts account had a debit balance of $400, the accounts receivable balance was $30,000at year end and the company estimates the uncollectible percentages as follows:
Current (1 - 30 days) $15,000 0.5%
31 - 60 days $10,000 2.0%
61 - 90 days $3,000 10.0%
Over 90 days $2000 60.0%
Required:
- Calculate the
bad debt expense at June 30, 2020. - Prepare the necessary
journal entry to record the bad debt expense for the year.
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