As of December 31, Frappe Company has a balance of $5,000 in accounts receivable. Of this amount, $500 is past due and the remainder is not yet due. Frappe has a credit balance of $45 in the Allowance for Doubtful Accounts. Frappe Company estimates its bad debt losses using the aging of receivables method, with estimated bad debt loss rates equal to 1% of accounts not yet due and 10% of past due accounts. How will the Bad Debt Expense account be included in the required adjusting journal entry at year-end?
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.
As of December 31, Frappe Company has a balance of $5,000 in
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