An excerpt from the trial balance of ABC Company shows the following: Accounts Receivable $1,000,000 Allowance for Bad debts $10,000 Sales $5,000,000 Sales discount $3,000 Sales returns and allowances $30,000 The company estimates that 10% of Accounts Receivable is doubtful of collection. Cash sales amounted to $2,000,000 Questions:
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.
An excerpt from the
Allowance for
Sales $5,000,000
Sales discount $3,000
Sales returns and allowances $30,000
The company estimates that 10% of Accounts Receivable is doubtful of collection.
Cash sales amounted to $2,000,000
Questions:
1)
2) Balance of Bad debts expense as of December 31
3) Balance of Allowance for Bad debts as of December 31
4) Should the adjustment was not made, what would be the effect on current assets?
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