Tommy Company sells electronics equipment and has grown rapidly in the last year by adding new customers. The company provides a credit term of 30 days for its customers, allowing them to make payments within a period of 30 days from the date of purchase. The audit partner has asked you to evaluate the allowance for doubtful accounts as at 31 December 2023. Comparative information on sales and accounts receivable is:
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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