A company had to pay R15 million in respect of customers’ claims for injuries suffered from goods manufactured and sold in the previous year. When preparing the financial statements for the previous year the company was not aware of it nor did they provide for these damages. How should the company report the amount paid? In the current year’s Statement of income, describing it as an extraordinary item or On the Statement of financial position as a deduction from the total of Equity and reserves or In the Statement of changes in equity as a deduction from balance brought forward or In the current year’s Statement of income, included as part of Administration Expenses.
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.
A company had to pay R15 million in respect of customers’ claims for injuries suffered from goods manufactured and sold in the previous year. When preparing the financial statements for the previous year the company was not aware of it nor did they provide for these damages. How should the company report the amount paid?
In the current year’s Statement of income, describing it as an extraordinary item or On the
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