Farm Fresh Produce Co. sells produce wholesale to local groceries on account. The accounts receivable department had the following information on December 31, 2009: Total Credit sales $400,000.00 Balance of allowance for doubtful accounts ($950.00) Bad debt as a percentage of credit sales 0.50% Days Past Due Amount J Company 34 5,000.00 H Company 74 950.00 L Company 18 32,000.00 T Company 22 4,350.00 F Company 61 2,000.00 B Company 145 1,750.00 Age Class Percentage Uncollectible 0-30 2% 30-60 5% 60-90 12% 90-120 20% 120+ 75% Instructions: 1. Create an aging of receivable report and determine the allowance for doubtful accounts. 2. Determine the allowance for doubtful accounts based on the percentage of sales method. 3. Illustrate the effects on the accounts and financial statements using both methods. 4. Illustrate the effects on the accounts and financial statements assuming Farm Fresh Produce Co. wrote off the balance of T Company on April 3, 2010. 5. Illustrate the effects on the accounts and financial statements assuming that T Company paid offits account on May 22, 2010.
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 #1
Farm Fresh Produce Co. sells produce wholesale to local groceries on account. The accounts receivable
department had the following information on December 31, 2009:
Total Credit sales $400,000.00
Balance of allowance for doubtful accounts ($950.00)
Days Past Due Amount
J Company 34 5,000.00
H Company 74 950.00
L Company 18 32,000.00
T Company 22 4,350.00
F Company 61 2,000.00
B Company 145 1,750.00
Age Class Percentage Uncollectible
0-30 2%
30-60 5%
60-90 12%
90-120 20%
120+ 75%
Instructions:
1. Create an aging of receivable report and determine the allowance for doubtful accounts.
2. Determine the allowance for doubtful accounts based on the percentage of sales method.
3. Illustrate the effects on the accounts and financial statements using both methods.
4. Illustrate the effects on the accounts and financial statements assuming Farm Fresh Produce Co.
wrote off the balance of T Company on April 3, 2010.
5. Illustrate the effects on the accounts and financial statements assuming that T Company paid offits account on May 22, 2010.
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