operations, Previts Corporation has credit sales of $690,000 and accounts receivable of $290,000. Given it’s the first year of operations, Previts’ management is unsure how much allowance for uncollectible accounts it should
By the end of its first year of operations, Previts Corporation has credit sales of $690,000 and accounts receivable of $290,000. Given it’s the first year of operations, Previts’ management is unsure how much allowance for uncollectible accounts it should establish. One of the company’s competitors, which has been in the same industry for an extended period, estimates uncollectible accounts to be 2% of ending accounts receivable, so Previts decides to use that same amount. However, actual write-offs in the following year were 25% of the $290,000 (= $72,500). Previts’ inexperience in the industry led to making sales to high credit risk customers.
3. Should Previts prepare new financial statements for the first year of operations to show the correct amount of uncollectible accounts?
Yes
No
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