Flyer Company has provided the following information prior to any year-end bad debt adjustment: Cash sales, $165,000 Credit sales, $465,000 Selling and administrative expenses, $125,000 • Sales returns and allowances, $45,000 • Gross profit, $505,000 • Accounts receivable, $255,000 ● ● ● Sales discounts, $29,000 • Allowance for doubtful accounts credit balance, $2,700 • Flyer prepares an aging of accounts receivable and the result shows that 2% of accounts receivable is estimated to be uncollectible. How much is bad debt expense?
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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