Grace Company is using 0.05% of sales to compute its quarterly doubtful accounts. Sales for the 1t-4th quarters are as follows: P5,000,000, P6,000,000, P7,000,000 and P8,000,000 which were the basis of the accountant in recording the quarterly doubtful accounts. Before the publication of the 4th quarter interim reports, the auditor of the company estimated that the doubtful accounts for the year should be P50,000 using aging of accounts receivable.
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.
9. What amount should be adjusted in relation to the doubtful accounts for the fourth quarter?
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