California Cannery began in 2008 with a debit balance in Accounts Receivable $150,000 and a credit balance in Allowance for Doubtful Accounts for 7,500 for the year. During the year California Cannery sold 1,300,000 of product and collected 1,350,000 from customers. In addition, $4,000 of Accounts Receivable balance was written off as uncollectable during the year. Management uses the allowance method to account for bad debts and believes that ultimately 5% of the year-end balance in Accounts Receivable will not be collected. How much bad debt expenses will be recorded in 2008?
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.
California Cannery began in 2008 with a debit balance in
How much bad debt expenses will be recorded in 2008?
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