From inception of operations, Paramount Company provided for uncollectible accounts receivable under the allowance method using the percentage of sales method. The balance in the allowance for doubtful accounts was P500,000 on January 1, 2020. During the current year, credit sales totaled P20,000,000, interim provisions for doubtful accounts were made at 2% of credit sales, P200,000 of bad debts were written off, and recoveries of accounts previously written off amounted to P50,000. The aging accounts receivable showed the following summary Classification Balance Collectible November to December 5,000,000 95% July to October 2,000,000 90% January to June 1,000,000 75% Prior to January 1,2020 500,000 25% Based on the review of collectibility of the account balances in "prior to January 1, 2020" aging category, additional accounts totaling P100,000 are to be written off on December 31, 2020. Effective with the year ended December 31, 2020, the entity adopted the aging method for estimating the allowance for doubtful accounts Requirements: What is the required allowance for doubtful accounts on December 31, 2020? What amount should be reported as doubtful accounts expense? What is the year-end adjustment to the allowance for doubtful accounts on December 31, 2020?
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.
From inception of operations, Paramount Company provided for uncollectible
The balance in the allowance for doubtful accounts was P500,000 on January 1, 2020.
During the current year, credit sales totaled P20,000,000, interim provisions for doubtful accounts were made at 2% of credit sales, P200,000 of
The aging accounts receivable showed the following summary
| Classification | Balance | Collectible |
| November to December | 5,000,000 | 95% |
| July to October | 2,000,000 | 90% |
| January to June | 1,000,000 | 75% |
| Prior to January 1,2020 | 500,000 | 25% |
Based on the review of collectibility of the account balances in "prior to January 1, 2020" aging category, additional accounts totaling P100,000 are to be written off on December 31, 2020.
Effective with the year ended December 31, 2020, the entity adopted the aging method for estimating the allowance for doubtful accounts
Requirements:
- What is the required allowance for doubtful accounts on December 31, 2020?
- What amount should be reported as doubtful accounts expense?
- What is the year-end adjustment to the allowance for doubtful accounts on December 31, 2020?
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 2 images
