Co. A is a newly formed business. During its first year of operations, credit sales were $60,000, sales returns were $10,000 and collections on credit sales were $32,000. One customer account for $625 was written off. Management uses the percentage of net sales method to account for bad debts expense and estimates 2% of credit sales to be uncollectible. The ending balance of Allowance for Bad Debts account is CIRCLE ONE: a. $375. b. $1,000. c. $348. d. $1,628.
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.
Step by step
Solved in 3 steps
