The president of Sheridan Enterprises asks if you could indicate the impact certain transactions have on the following ratios. Complete the table, indicating whether each transaction will increase, decrease, or have no effect on the specific ratios provided for Sheridan Enterprises. Transaction 1. Received $7,300 on cash sale. The cost of the goods sold was $3,796 2. Recorded bad debt expense of $730 using allowance method. 3. Wrote off a $146 account receivable as uncollectible (Uses allowance method.) 4. Recorded $3,650 sales on account. The cost of the goods sold was $2,190. Save for Later Current Ratio (2:1) Accounts Receivable Turnover (10X) Average Collection Period (36.5 days)
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.
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