The Company handles credit losses using the allowance method. The credit balance of the Allowance for Doubtful Accounts is $820 on December 31, before any adjustments. Prepare the adjusting entry for estimated credit losses on December 31.
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.
E8-2A
Credit Losses Based on
Hunter, Inc., analyzed its account receivable balances at December 31, and arrived at the aged balances listed below, along with the percentage that is estimated to be uncollectible:
Age Group Balance Probability of None Collection
0-30 past due $90,000 1
31-60 past due $20,000 2
61-120 past due $11,000 6
121-180 past due $6,000 10
Over 180 past due $5,000 25
$132,000
The Company handles credit losses using the allowance method. The credit balance of the Allowance for Doubtful Accounts is $820 on December 31, before any adjustments.
- Prepare the
adjusting entry for estimated credit losses on December 31.
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