Aging Analysis of Accounts Receivable Cowen’s, a large department store located in a metropolitan area, has been experiencing difficulty in estimating its bad debts. The company has decided to prepare an aging schedule for its outstanding accounts receivable and estimate bad debts by the due dates of its receivables. This analysis dis-closes the following information: Balance: Age of receivable: Estimated Percentage Uncollectible: $193,000 Under 30 days 0.8% 114,000 30-60 days 2.0% 73,000 61-120 days 5.0% 41,000 121-240 days 20.0% 25,000 241- 360 days 35.0% 19,000 Over 360 days 60.0% $465,000 Required: 1. Use the preceding analysis to compute the estimated amount of uncollectible receivables. 2. What is the net realizable value of Cowen’s accounts receivable? 3. Prepare the journal entry to record Cowen’s estimated uncollectibles, assuming the balance in Allowance for Doubtful Accounts prior to adjustment is: a. 0 b. $3,000 (debit) c. $2,800 (credit)
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.
Aging Analysis of
Balance: Age of receivable: Estimated Percentage Uncollectible:
$193,000 Under 30 days 0.8%
114,000 30-60 days 2.0%
73,000 61-120 days 5.0%
41,000 121-240 days 20.0%
25,000 241- 360 days 35.0%
19,000 Over 360 days 60.0%
$465,000
Required: 1. Use the preceding analysis to compute the estimated amount of uncollectible receivables.
2. What is the net realizable value of Cowen’s accounts receivable?
3. Prepare the
a. 0
b. $3,000 (debit)
c. $2,800 (credit)
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