E7.9 (LO 3) (Computing Bad Debts and Preparing Journal Entries) The trial balance before adjustment of Taylor Swift Inc. shows the following balances. Dr. Cr. Accounts Receivable $90,000 Allowance for Doubtful Accounts 1,750 Sales Revenue (all on credit) $680,000 Instructions: Give the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of (a) 4% of gross accounts receivable (b) 5% of gross accounts receivable and Allowance for Doubtful Accounts has a $1,700 credit balance. (c) Company uses percentage of sales method. Bad debts are estimated at 2% of net credit sales. AFDA has a credit balance of 1,700.
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.
E7.9 (LO 3) (Computing
Dr. Cr.
Allowance for Doubtful Accounts 1,750
Sales Revenue (all on credit) $680,000
Instructions:
Give the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of
(a) 4% of gross accounts receivable
(b) 5% of gross accounts receivable and Allowance for Doubtful Accounts has a $1,700 credit balance.
(c) Company uses percentage of sales method. Bad debts are estimated at 2% of net credit sales. AFDA has a credit balance of 1,700.
(d) Based on (c), what will be the ending balance in AFDA? What is net realizable value of A/R?
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(d) Based on (c), what will be the ending balance in AFDA? What is net realizable value of A/R?
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