A portion of the current assets section of the December 31, 2019, balance sheet for Gibbs Co. is presented here: Accounts receivable $ 22,400 Less: Allowance for bad debts (4,000 ) $ 18,400 The company’s accounting records revealed the following information for the year ended December 31, 2020: Sales (all on account) $ 162,000 Cash collections from customers 142,000 Accounts written off 3,500 Bad debts expense (accrued at 12/31/20) 5,100 Required:Calculate the net realizable value of accounts receivable at December 31, 2020, and prepare the appropriate balance sheet presentation for Gibbs Co. as of that point in time. (Hint: Use T-accounts to analyze the Accounts Receivable and Allowance for Bad Debts accounts.)
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.
A portion of the current assets section of the December 31, 2019, balance sheet for Gibbs Co. is presented here:
| $ | 22,400 | ||||
| Less: Allowance for |
(4,000 | ) | $ | 18,400 | |
The company’s accounting records revealed the following information for the year ended December 31, 2020:
| Sales (all on account) | $ | 162,000 |
| Cash collections from customers | 142,000 | |
| Accounts written off | 3,500 | |
| Bad debts expense (accrued at 12/31/20) | 5,100 | |
Required:
Calculate the net realizable value of accounts receivable at December 31, 2020, and prepare the appropriate balance sheet presentation for Gibbs Co. as of that point in time. (Hint: Use T-accounts to analyze the Accounts Receivable and Allowance for Bad Debts accounts.)
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