Prepare an adjusting entry to create allowance for doubtful debts in 2019 InstructionsInstallment Jewelry Company has been in business for 5 years but has never had its financial statements audited. Engaged to audit them for 2019, you find that the company's balance sheet carriesno allowance for bad accounts. Bad accounts have been expensed as written-off and recoveries credited to income as collected. The company's policy is to write off at December 31 of each yearthose accounts on which no collections have been received for three months. The installment contracts generally are for 2 years.On your recommendation, the company agrees to revise its accounts for 2019 to give effect to bad account treatment on the allowance basis. The allowance is to be based on a percentage of creditsales that is derived from the experience of prior years. Statistics for the past 5 years are shown in the following table:Year of Sale Credit SalesAccounts Written OffRecoveries2015 2016 2017 2018 20192015$100,000 $550 $1,000 $8502016250,0001,000 4,000 $1,900$1002017300,0001,300 3,950 $2,7004002018288,0001,500 5,0005002019352,0001,400600Accounts receivable at December 31, 2019, were as follows:2018 credit sales $15,0002019 credit sales 135,000$150,000

Working of %age of bad debts Particulars Sales Amount $ Amount $ %age of bad debts…

Answered: ud accounts. Badi which no collecti

Business

Accounting

ud accounts. Badi which no collecti

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Bookkeeping

Bookkeeping is the process of recording the financial transactions of a company on a regular basis. With the process of bookkeeping, companies can track important financial information that helps management in making crucial decisions.

Question

Prepare an adjusting entry to create allowance for doubtful debts in 2019

Instructions
Installment Jewelry Company has been in business for 5 years but has never had its financial statements audited. Engaged to audit them for 2019, you find that the company's balance sheet carries
no allowance for bad accounts. Bad accounts have been expensed as written-off and recoveries credited to income as collected. The company's policy is to write off at December 31 of each year
those accounts on which no collections have been received for three months. The installment contracts generally are for 2 years.
On your recommendation, the company agrees to revise its accounts for 2019 to give effect to bad account treatment on the allowance basis. The allowance is to be based on a percentage of credit
sales that is derived from the experience of prior years. Statistics for the past 5 years are shown in the following table:
Year of Sale Credit Sales
Accounts Written Off
Recoveries
2015 2016 2017 2018 2019
2015
$100,000 $550 $1,000 $850
2016
250,000
1,000 4,000 $1,900
$100
2017
300,000
1,300 3,950 $2,700
400
2018
288,000
1,500 5,000
500
2019
352,000
1,400
600
Accounts receivable at December 31, 2019, were as follows:
2018 credit sales $15,000
2019 credit sales 135,000
$150,000

Definition Definition Entries made at the end of every accounting period to precisely replicate the expenses and revenue of the current period. This is also known as end of period adjustment. It can also refer to financial reporting that corrects errors made previously in the accounting period. Every adjustment entry affects at least one real account and one nominal account.

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