What amount should be reported as doubtful accounts expense in the income statement for 2020? From inception of operations, Murr Company provided for uncollectible accounts expense under the allowance method, provisions were made monthly at 2% of credit sales, bad debts written off were charged to the allowance account, recoveries of bad debts previously written off to the allowance account, and no year-end adjustments to the allowance were made. The allowance for doubtful accounts was P120,000 on January 1, 2020. During the current year, credit sales totaled P9,000,000, interim provisions for doubtful accounts were made at 2% of credit sales, P90,000 of bad debts were written off, and recoveries of accounts previously written off amounted to P15,000. The entity prepared an aging of accounts receivable for the first time on December 31, 2020. Classification Balance Uncollectible November – December 2,000,000 600,000 2% July - October 10% January - June 400,000 25% Prior to January 1, 2020 200,000 75% Based on the review of collectability of the account balances in the "prior to January 1, 2020" aging category, additional accounts totaling P60,000 are to written off on December 31, 2020. Effective with the year ended December 31, 2020, the entity adopted a new accounting method for estimation the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of account receivable.
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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