Calculate the amount of the bad-debt expense for Martin Services for the year ended December 31, 2019
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.
The following information is available for Martin Services for the year ended December 31, 2019.
Allowance for doubtful accounts,
Jan 1, 2019 1,000 Cr.
Sales Revenue for 2019 (40% on credit) 600,000
Bad debt write-offs during 2019 1,500
Bad debt recoveries during 2019 600
Collections on account during 2019 230,000
Assume that Martin Services uses the percent-of-accounts-receivable method of estimating
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