Los Altos, Inc. uses the allowance method of handling its credit losses. It estimates credit losses at 2% of credit sales, which were $900,000 during the year. On December 31, the Accounts Receivable balance was $150,000, and the Allowance for Doubtful Accounts had a credit balance of $10,200 before adjustment. a. Determine the amount and financial statement effect of the adjustment to record the credit losses for the year. Note: Use negative signs with answers, when appropriate. Balance Sheet Income Statement Stockholders' Assets = Liabilities + Equity Revenues - Expenses = Net Income b. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear in the December 31 balance sheet. Note: Do not use negative signs with any of your answers.
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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.
Los Altos, Inc. uses the allowance method of handling its credit losses. It estimates credit losses at 2% of credit sales,
which were $900,000 during the year.
On December 31, the
credit balance of $10,200 before adjustment.
a. Determine the amount and financial statement effect of the adjustment to record the credit losses for the year.
Note: Use negative signs with answers, when appropriate.
| Income Statement | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Stockholders' | ||||||||||||
| Assets | = | Liabilities | + | Equity | Revenues | - | Expenses | = | Net Income | |||
b. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear in the December 31 balance sheet.
Note: Do not use negative signs with any of your answers.
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