a. Company A increases the allowance for doubtful accounts (ADA). Using the old estimate, ADA would have been $40,000. The new estimate is $45,000. b. Company B omitted to record an invoice for a(n) $8,000 sale made on credit at the end of the previous year and incorrectly recorded the sale in the current year. The related inventory sold has been accounted for. c. Company C changes its revenue recognition to a more conservative policy. The result is a decrease in prior-year revenue by $3,000 and a decrease in current-year revenue by $4,000 relative to the amounts under the old policy.
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.
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Scenarios
-
a. Company A increases the allowance for doubtful accounts (ADA). Using the
old estimate, ADA would have been $40,000. The new estimate is $45,000.
X
b. Company B omitted to record an invoice for a(n) $8,000 sale made on credit at
the end of the previous year and incorrectly recorded the sale in the current
year. The related inventory sold has been accounted for.
c. Company C changes its revenue recognition to a more conservative policy.
The result is a decrease in prior-year revenue by $3,000 and a decrease in
current-year revenue by $4,000 relative to the amounts under the old policy.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F56fee267-09eb-4cf6-925d-6d5b8adc5c09%2Ffe468a8a-1e74-44df-a4b4-c38745f682fd%2Fab2vb_processed.png&w=3840&q=75)
![Begin by evaluating each of the scenarios to determine the type of accounting change and the appropriate accounting treatment. (Refer to the letter reference for
each scenario.)
Type of accounting change
a. Change in estimate
b. Correction of an error
c. Change in accounting policy
a.
Treatment
Prospective
Retrospective
Retrospective
Next, determine the effects (if any) of the accounting change on the relevant asset or liability, equity, and comprehensive income in the year of change and the prior
year. (For any accounts unaffected, select "No eff." in the Change column and leave the amount column blank. For the Asset or Liability account, select "Incr. A" to
indicate an increase in an asset, "Decr. L" for decrease in liability, and so on.)
Year prior to change
Asset or
Change Liability Change Equity Change
Amount
Amount
Income Change
Amount
Year of accounting change
Asset or
Liability Change Equity Change
Amount
Amount
Income
Amount](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F56fee267-09eb-4cf6-925d-6d5b8adc5c09%2Ffe468a8a-1e74-44df-a4b4-c38745f682fd%2F4exen8v_processed.png&w=3840&q=75)
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