Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for bad debt expense is recorded only at December 31, the company's fiscal year-end. The 2020 balance sheet disclosed the following. Current assets: Receivables, net of allowance for uncollectible accounts of $45,000 $507,000 During 2021, credit sales were $1,825,000, cash collections from customers $1,905,000, and $54,000 in accounts receivable were written off. In addition, $4,500 was collected from a customer whose account was written off in 202. An aging of accounts receivable at December 31, 2021, reveals the following: Percentage of Year-End Percent Age Group Receivables in Group Uncollectible 0-60 days 70% 5% 61-90 days 20 15 91-120 days 5 20 Over 120 days 5 40 Required: Prepare the year-end adjusting entry for bad debts according to each of the following situations: Bad debt expense is estimated to be 4% of credit sales for the year. Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable. Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. The allowance for uncollectible accounts is determined by an aging of accounts receivable. No Transaction General Journal Debit Credit 2 b. _____________________ _________ ___________ ______________________ _________ ____________ Required: For situations (a) –(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2021 balance sheet?
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.
Raintree Cosmetic Company sells its products to customers on a credit basis. An
Current assets:
Receivables, net of allowance for uncollectible accounts of $45,000 $507,000
During 2021, credit sales were $1,825,000, cash collections from customers $1,905,000, and $54,000 in
Percentage of Year-End Percent
Age Group Receivables in Group Uncollectible
0-60 days 70% 5%
61-90 days 20 15
91-120 days 5 20
Over 120 days 5 40
Required:
- Prepare the year-end adjusting entry for
bad debts according to each of the following situations: - Bad debt expense is estimated to be 4% of credit sales for the year.
- Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable.
- Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. The allowance for uncollectible accounts is determined by an aging of accounts receivable.
No Transaction General Journal Debit Credit
2 b. _____________________ _________ ___________
______________________ _________ ____________
Required:
- For situations (a) –(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2021 balance sheet?
Net amount
Receivable reported
- ____________________
- ____________________
- ____________________
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