Receivables: Companies generally make credit sales to improve their business and expand their customer base. When a credit sales is made the amount that the company has to receive from its customers is known as receivable. Usually company all the customers does not repay the amount they owe to the company and hence there are chances of some not repaying the amount and these are called as bad debts . The company usually estimates that a portion of its receivables will become bad debts and create provisions for the same. Therefore the bad debts for the year is adjusted by transferring the amount to allowance for bad debts account. Aging Method of accounts receivables: Under this method bad debts expenses are estimated by determining the age of the accounts receivable i.e. each accounts receivable are categorized by their age then the amount of default under each category is estimated based on experience and past history. Percentage of Credit Sales Method: Under this method bad debts are estimated as a percentage of credit sale. The percentage is estimated based on previous experience and past history. Prepare adjusting entry for bad debts under the following assumptions. (a) Front Row has performed aging of accounts receivables and estimated that $895 of its accounts receivable will be uncollected. (b) Front row uses percentage of sales method and estimated 2% of credit sales will be uncollectible.

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Chapter 5, Problem 97.2C

To determine

Concept introduction:

Receivables:

Companies generally make credit sales to improve their business and expand their customer base. When a credit sales is made the amount that the company has to receive from its customers is known as receivable. Usually company all the customers does not repay the amount they owe to the company and hence there are chances of some not repaying the amount and these are called as bad debts. The company usually estimates that a portion of its receivables will become bad debts and create provisions for the same. Therefore the bad debts for the year is adjusted by transferring the amount to allowance for bad debts account.

Aging Method of accounts receivables:

Under this method bad debts expenses are estimated by determining the age of the accounts receivable i.e. each accounts receivable are categorized by their age then the amount of default under each category is estimated based on experience and past history.

Percentage of Credit Sales Method:

Under this method bad debts are estimated as a percentage of credit sale. The percentage is estimated based on previous experience and past history.

Prepare adjusting entry for bad debts under the following assumptions. (a) Front Row has performed aging of accounts receivables and estimated that $895 of its accounts receivable will be uncollected. (b) Front row uses percentage of sales method and estimated 2% of credit sales will be uncollectible.

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