Liang Company began operations in Year 1. During its first two years, the company completed a number of transactions involving sales on credit, accounts receivable collections, and bad debts. These transactions are summarized as follows. Year 1 a. Sold $1,353,600 of merchandise on credit (that had cost $978,600), terms n/30. b. Wrote off $21,400 of uncollectible accounts receivable. c. Received $672,600 cash in payment of accounts receivable. d. In adjusting the accounts on December 31, the company estimated that 3.00% of accounts receivable would be uncollectible. Year 2 e. Sold $1,504,500 of merchandise (that had cost $1,254,100) on credit, terms n/30. f. Wrote off $32,600 of uncollectible accounts receivable. 9. Received $1,348,000 cash in payment of accounts receivable. h. In adjusting the accounts on December 31, the company estimated that 3.00% of accounts receivable would be uncollectible

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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.