Egida Company started its business on January 1, 2021. After considering the collection experience of other entities in the industry, Egida established an allowance for bad debts estimated at 5% of credit sales. Outstanding accounts receivable recorded on December 31, 2021 totaled P115,000 while the allowance for bad debts account had a credit balance of P12,500 after recording estimated doubtful accounts expense for December and after writing off P2,500 of uncollectible accounts. Further analysis of the entity’s accounts showed that merchandise purchased in 2011 amounted to P450,000 and ending merchandise inventory was P75,000. Goods were sold at 40% above cost. Sales on account amounted to 80% of total sales. Total collections from customers, on the other hand, excluding cash sales, amounted to P300,000. The net realizable value of the accounts receivable at December 31, 2021 is overstated (understated) by:
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.
Problem 24
Egida Company started its business on January 1, 2021. After considering the collection experience of other entities in the industry, Egida established an allowance for
- The net realizable value of the accounts receivable at December 31, 2021 is overstated (understated) by:
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