Med Labs has the following December 31 year-end unadjusted balances: Allowance for Sales Discounts, $0; and Accounts Receivable, $5,000. Of the $5,000 of receivables, $1,000 are within a 2% discount period, meaning that it expects buyers to take $20 in future-period discounts arising from this period’s sales. a. Prepare the December 31 year-end adjusting journal entry for future sales discounts. b. Assume the same facts above and that there is a $5 year-end unadjusted credit balance in Allowance for Sales Discounts. Prepare the December 31 year-end adjusting journal entry for future sales discounts. c. Is Allowance for Sales Discounts a contra asset or a contra liability account?
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.
Med Labs has the following December 31 year-end unadjusted balances: Allowance for Sales Discounts,
$0; and
meaning that it expects buyers to take $20 in future-period discounts arising from this period’s sales.
a. Prepare the December 31 year-end
b. Assume the same facts above and that there is a $5 year-end unadjusted credit balance in Allowance for
Sales Discounts. Prepare the December 31 year-end adjusting journal entry for future sales discounts.
c. Is Allowance for Sales Discounts a contra asset or a contra liability account?
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