Estimating doubtful accounts Outlaw Bike Co. is a wholesaler of motorcycle supplies. An aging of the company's accounts receivable on December 31 and a historical analysis of the percentage of uncollectible account in each age category are as follows: Age Class Not past due 1-30 days past due 31-60 days past due 61-90 days past due 91-180 days past due Over 180 days past due Total Balance $868,000 95,500 43,400 31,200 22,600 16,500 $1,077,200 Percent Uncollectible 1/2% 4 8 16 38 80 Estimate what the proper balance of the allowance for doubtful accounts should be as of December 31.
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 is the ledger that shows the uncollectible accounts. Accounts that remain uncollectible for too long. The company makes the provision of doubtful accounts according to the age of the receivables.
This helps the users of the financial statements to get the real picture of receivables.
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