Classification by Month of Sale Balance in Each Estimated % Uncollectible Category $1,140,000 600,000 400,000 130,000 $2,270,000 Nov.-Dec. 2019 July-Oct. Jan-June Prior to 1/1/2019 2% 10 25 75
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.
Allowance for Doubtful Accounts From inception of operations to
December 31, 2018, Harris Corporation provided for uncollectible
monthly at 2% of credit sales;
allowance account; recoveries of bad debts previously written off were
credited to the allowance account; and no year-end adjustments to the
allowance account were made. Harris's usual credit terms are net 30
days.
The balance in the Allowance for Doubtful Accounts was $130,000 at
January 1, 2019. During 2019, credit sales totaled $9,000,000, interim
provisions for doubtful accounts were made at 2% of credit sales,
$90,000 of bad debts were written off, and recoveries of accounts
previously written off amounted to $15,000. Harris upgraded its
computer facility in November 2019, and an aging of accounts receivable
was prepared for the first time as of December 31, 2019. A summary of
the aging is as follows:
Based on the review of collectibility of the account balances in the "prior
to 1/1/2019" aging category, additional receivables totaling $60,000 were
written off as of December 31, 2019 Effective with the year ended
December 31, 2019, Harris adopted a new accounting method for
estimating the allowance for doubtful accounts at the amount indicated
by the year-end aging analysis of accounts receivable.
Required:
1. Prepare a schedule analyzing the changes in the allowance for
doubtful accounts for the year ended December 31, 2019. Show
supporting computations in good form.
2. Prepare the
Allowance for Doubtful Accounts balance as of December 31, 2019.
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