Victory Company should report bad debts expensefor 2018 of?
Transcribed Image Text:Victory Company sells office equipment and supplies to many organizations in the city and surrounding
area on contract terms of 2/10, n/30. In the past, over 75% of the credit customers have taken
advantage of the discount by paying within 10 days of the invoice date.
The number of customers taking the full 30 days to pay has increased within the last year. Current
indications are that less than 60% of the customers are now taking the discount. Bad debts as a
percentage of gross credit sales have risen from 1.5% provided in past years to about 4% in the current
year.
The controller has responded to a request for more information on the deterioration in collections of
accounts receivable with the report reproduced below.
VICTORY COMPANY
Finance Committee Report - Accounts Receivable Collections
Dec. 31, 2018
The fact that some credit accounts will prove uncollectible is normal. Annual bad debts write-off have
been 1.5% of gross credit sales over the past five years. During the last calendar year, this percentage
increased to slightly less than 4%. The current Accounts Receivable balance is P3,200,000. The
condition of this balance in terms of age and probability of collections is as followe:
Proportion of
Total
Probability of
Collection
Age Categories
not yet due
less than 30 days past due
30 to 60 days past due
68%
99%
15%
96.50%
9%
95%
61-120 days past due
121-180 days past due
over 180 days past due
4%
91%
2.50%
70%
1.50%
20%
Allowance for Doubtful Accounts had a credit balance of P86,600 on January 1, 2018. Victory Company
has provided for a bad debt expense acerual during the current year of P320,000 based on the
assumption that 4% of gross credit sales will be uncollectible. Write-offs of bad accounts during the year
totaled P290,000.
Definition Definition Receivable amount that a company is owed, but did not receive, and which may not be receivable in future.
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