At 31 December 20X8, Small Ltd. reported gross accounts receivable of $2,481,800. Investigation showed the following: The credit balance in the allowance for doubtful accounts was $182,400 after write-offs for the year but before any bad debt adjustment. Bad debt expense is based on a percentage of receivables. Based on the latest available facts, $280,000 will not be collected due to collection issues. Terms of 1/10, n/30 were granted to all customers. Accounts receivable were recorded gross, and the discounts taken were recorded when taken by the customers in a discounts account, reported contra to the sales account. Estimated discounts inherent in the closing accounts receivable balance were $30,600. The allowance for sales discounts account was established at $29,800 last year and has not been adjusted since. Prepare year-end adjusting entries with respect to accounts receivable. Show how the net accounts receivable would appear on the statement of financial position on 31 December 20X8.
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.
At 31 December 20X8, Small Ltd. reported gross
- The credit balance in the allowance for doubtful accounts was $182,400 after write-offs for the year but before any
bad debt adjustment. Bad debt expense is based on a percentage of receivables. Based on the latest available facts, $280,000 will not be collected due to collection issues.
Terms of 1/10, n/30 were granted to all customers. Accounts receivable were recorded gross, and the discounts taken were recorded when taken by the customers in a discounts account, reported contra to the sales account. Estimated discounts inherent in the closing accounts receivable balance were $30,600. The allowance for sales discounts account was established at $29,800 last year and has not been adjusted since.
- Prepare year-end
adjusting entries with respect to accounts receivable. - Show how the net accounts receivable would appear on the
statement of financial position on 31 December 20X8.
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