The following unadjusted balances of Echo Company are presented at September 30, 2023: Dr. Cr. Accounts receivable $100 000 Sales returns and allowances 40 000 Allowance for doubtful accounts $ 2 500 Credit Sales 750 000 (a) Prepare the journal entry for estimated bad debts assuming that doubtful accounts are estimated to be 6% of gross accounts receivable. (b) Prepare the journal entry for estimated bad debts assuming that doubtful accounts are estimated to be 1% of net sales
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.
The following unadjusted balances of Echo Company are presented at September 30, 2023:
|
|
Dr. |
Cr. |
|
|
$100 000 |
|
|
Sales returns and allowances |
40 000 |
|
|
Allowance for doubtful accounts |
|
$ 2 500 |
|
Credit Sales |
|
750 000 |
(a) Prepare the
Bad Debt Expense is an expense incurred to record uncollectible debtors. Receivables that are unpaid for too long will be considered as uncollectible and considered in the income statement as an expense.
Recording bad debts helps the user of the financial statements to understand the collectible receivables.
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