Flappable Company began operations on danuary 1, 2017. The entity provided for doubtful accounts based on 5% of annual credit sales in prior years. On January 1, 2020, the entity changed the method of determining the allowance for doubtful accounts using an aging schedule. 2020 2019 2018 2017 Credit sales Collections excluding recovery Accounts written off during year Recovery of accounts written off 15,000,000 9,500,000 8,000,000 6,000,000 11,700,000 8,200,000 6,700,000 4,500,000 200,000 100,000 80,000 35,000 None 120,000 40,000 None Days Account Outstanding Amount Probability of Collection 30 days or less Between 31 and 60 days Between 61 and 180 days Between 18l and one year Over one year-to be written off 3,000,000 1,500,000 1,200,000 1,200,000 100,000 95% 80% 75% 50% 0% 1. What amount should be reported as allowance for doubtful accounts on December 31, 2020? a. 1,350,000 b. 1,450,000 c. 1,250,000 d. 1,000,000 2. What amount should be reported as doubtful accounts expense for the current year? a. 500,000 b. 600,000 c. 700,000 d. 400,000 3. What is the net realizable value of accounts receivable on December 31, 2020? a. 6,900,000 b. 7,000,000 c. 5,550,000 d. 5,650,000
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.
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