Exercise 8-11 Estimating bad debt expense-percentage of sales CHECK FIGURE: d. Accounts receivable(net)=$232,700 Selected unadjusted account balances at December 31, 2020, are shown below for Demron Servicing. Account Debit Credit Accounts receivable $70,000 Allowance for doubtful accounts $1,100 Sales (all on credit) 480,000 Sales discounts 8,000 Required Demron estimates that 1.5% of net credit sales will prove to be uncollectible. Prepare the adjusting entry required on December 31, 2020, to estimate uncollectible receivables. During 2021, credit sales were $620,000 (cost of sales $406,500); sales discounts of $12,000 were taken when accounts receivable of $440,000 were collected; and accounts written off during the year totaled $10,000. Prepare the entries for these transactions. Record the adjusting entry required on December 31, 2021 to estimate uncollectible receivables, assuming it is based on 1.5% of net credit sales. Show how accounts receivable would appear on the December 31, 2021, balance sheet. Analysis Component: Comment on the advantages and disadvantages of using the income statement approach for estimating uncollectibles.
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.
Exercise 8-11 Estimating
CHECK FIGURE: d. Accounts receivable(net)=$232,700
Selected unadjusted account balances at December 31, 2020, are shown below for Demron Servicing.
|
Account |
Debit |
Credit |
|
Accounts receivable |
$70,000 |
|
|
Allowance for doubtful accounts |
|
$1,100 |
|
Sales (all on credit) |
|
480,000 |
|
Sales discounts |
8,000 |
|
Required
- Demron estimates that 1.5% of net credit sales will prove to be uncollectible. Prepare the
adjusting entry required on December 31, 2020, to estimate uncollectible receivables. - During 2021, credit sales were $620,000 (cost of sales $406,500); sales discounts of $12,000 were taken when accounts receivable of $440,000 were collected; and accounts written off during the year totaled $10,000. Prepare the entries for these transactions.
- Record the adjusting entry required on December 31, 2021 to estimate uncollectible receivables, assuming it is based on 1.5% of net credit sales.
- Show how accounts receivable would appear on the December 31, 2021, balance sheet.
Analysis Component:
Comment on the advantages and disadvantages of using the income statement approach for estimating uncollectibles.
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