Suzuki Supply reports the following amounts at the end of 2024 (before adjustment). Credit Sales for 2024 Accounts Receivable, December 31, 2024 $248,000 43,000 1,000 (Credit) Allowance for Uncollectible Accounts, December 31, 2024 Required: 1. Record the adjusting entry for uncollectible accounts using the percentage-of-receivables method. Suzuki estimates 10% of receivables will not be collected. 2. Record the adjusting entry for uncollectible accounts using the percentage-of-credit-sales method. Suzuki estimates 2% of credit sales will not be collected. 3. Calculate the effect on net income (before taxes) and total assets in 2024 for each method.
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.
Bad Debt:
Bad debt is an expense that arises due to uncollectible account receivables. Bad debts are shown in the income statement of the period in which this expense is incurred. It is part of the asset that is not beneficial anymore due to the default of the creditors.
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