Tom keen to set up stock cards for his remaining stock lines, John has decided to look at other areas of Tom's business to see what improvement can be made. In reviewing the work you have done so far, Jim has noticed one set numbers that he would like some clarification on. In the initial opening entry John spotted that the Accounts Receivable account had a balance of $11,913 and that listed next to that was the Allowance for Doubtful Debts with a credit balance of $1,193. John had asked Tom about the allowance figure, but he said didn’t really know why it was there but one of his old accountants suggested that having an allowance of 10% of accounts receivable is a good idea. John has also found similar figures in the journal entry to record the acquisition of the TVA, with Accounts Receivable listed at $16,000 and an allowance for Doubtful Debts of $3,000 (which is closer to 20%). Further investigation revealed the TVA had originally recorded an allowance in their books of $1500 before the acquisition. Explain to John what the allowance of doubtful account is designed to show and if 10% is an appropriate figure to use in working out an allowance. Also provide John some suggestions on why the allowance the TVA had recorded and what was recorded in the journal for the acquisition would have been different
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.
Tom keen to set up stock cards for his remaining stock lines, John has decided to look at other areas of Tom's business to see what improvement can be made. In reviewing the work you have done so far, Jim has noticed one set numbers that he would like some clarification on.
In the initial opening entry John spotted that the
John has also found similar figures in the
Explain to John what the allowance of doubtful account is designed to show and if 10% is an appropriate figure to use in working out an allowance. Also provide John some suggestions on why the allowance the TVA had recorded and what was recorded in the journal for the acquisition would have been different
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