At December 31, Hawke Company reports the following results for its calendar year. Cash sales $ 320,000 Credit sales $ 800,000 In addition, its unadjusted trial balance includes the following items. Accounts receivable $ 432,000 debit Allowance for doubtful accounts $ 4,300 debit Required: 1. Prepare the adjusting entry to record bad debts under each separate assumption. Bad debts are estimated to be 3% of credit sales. Bad debts are estimated to be 2% of total sales. An aging analysis estimates that 5% of year-end accounts receivable are uncollectible. Adjusting entries (all dated December 31).
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 December 31, Hawke Company reports the following results for its calendar year.
| Cash sales | $ 320,000 |
|---|---|
| Credit sales | $ 800,000 |
In addition, its unadjusted
| $ 432,000 | debit | |
| Allowance for doubtful accounts | $ 4,300 | debit |
Required:
1. Prepare the adjusting entry to record
- Bad debts are estimated to be 3% of credit sales.
- Bad debts are estimated to be 2% of total sales.
- An aging analysis estimates that 5% of year-end accounts receivable are uncollectible.
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