bints) On December 31, 2021, RTQ, Inc. reports an ending balance of $2,435,000 for Accounts Receivable and of $36,500 for the Allowance for Bad Debts. Credit sales for the year were $6,088,000 and the company estimates that 2% of credit sales will be uncollectible. Based on this information, how much will RTQ, Inc. need to credit its Allowance for Bad Debts as part of it adjusting entries? (AC 11) O $12,200 O $85,200 O $48,700 O $121,760
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.
Since it lowers the value of an asset—in this case, the accounts receivable—the allowance for bad debts is referred to as a "contra asset." The allowance, also known as a bad debt reserve, is management's projection of the sum of accounts receivable that debtors will not pay.
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