hair care products to beauty salons throughout Texas and the Southwest. The accounts receivable clerk for Wig Creations prepared the following partially completed aging of receivables schedule as of the end of business on December 31, 20Y7:
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.
Aging of receivables; estimating allowance for doubtful accounts
Obj. 4 Wig Creations Company supplies wigs and hair care products to beauty salons throughout Texas and the Southwest. The
The following accounts were unintentionally omitted from the aging schedule. Assume all due dates are for the current year except for Visions Hair & Nail, which is due in the next year.
| Customer | Due Date | Balance |
|---|---|---|
| Arcade Beauty | Aug. 17 | $10,000 |
| Creative Images | Oct. 30 | 8,500 |
| Excel Hair Products | July 3 | 7,500 |
| First Class Hair Care | Sept. 8 | 6,600 |
| Golden Images | Nov. 23 | 3,600 |
| Oh That Hair | Nov. 29 | 1,400 |
| One Stop Hair Designs | Dec. 7 | 4,000 |
| Visions Hair & Nail | Jan. 11 | 9,000 |
Wig Creations has a past history of uncollectible accounts by age category, as follows:
| Age Class | Percent Uncollectible |
|---|---|
| Not past due | 1% |
| 1–30 days past due | 4 |
| 31–60 days past due | 16 |
| 61–90 days past due | 25 |
| 91–120 days past due | 40 |
| Over 120 days past due | 80 |
Instructions
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Determine the number of days past due for each of the preceding accounts.
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Complete the aging of receivables schedule by adding the omitted accounts to the bottom of the schedule and updating the totals.
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Estimate the allowance for doubtful accounts, based on the aging of receivables schedule.
AnswerCheck Figure: $123,235
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Assume that the allowance for doubtful accounts for Wig Creations has a credit balance of $7,375 before adjustment on December 31. Journalize the adjustment for uncollectible accounts.
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Assume that the
adjusting entry in (4) was inadvertently omitted, how would the omission affect thebalance sheet and income statement?
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