Ex. ABC has a $150,000 opening balance in its accounts receivable and a $15,000 opening balance in AFDA. During the year, ABC sells $500,000 of merchandise on account and another $200,000 for cash. During the year, ABC collects $380,000 of accounts receivable, writes off $28,000 of accounts receivable and reinstates $5,000 of the previously written off accounts receivable. INSTRUCTIONS: 1. Prepare journal entries for the above transactions. 2. Calculate the balances of Accounts Receivable and AFDA. Indicate whether it's a debit balance or credit balance. 3. If ABC estimates its bad debt expense as 1% of credit sales, prepare the year end adjusting entry. 4. If ABC estimates its bad debt expense as 5% of A/R, prepare the year end adjusting entry 5. Calculate the ending balance of AFDA for #3 and #4.
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.
Ex. ABC has a $150,000 opening balance in its
opening balance in AFDA. During the year, ABC sells $500,000 of merchandise on account
and another $200,000 for cash. During the year, ABC collects $380,000 of accounts
receivable, writes off $28,000 of accounts receivable and reinstates $5,000 of the
previously written off accounts receivable.
INSTRUCTIONS:
1. Prepare
2. Calculate the balances of Accounts Receivable and AFDA. Indicate whether it's a debit balance or credit balance.
3. If ABC estimates its
4. If ABC estimates its bad debt expense as 5% of A/R, prepare the year end adjusting entry
5. Calculate the ending balance of AFDA for #3 and #4.
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