Allowance Method The Wallbrook Company, which has been in business for three years, makes all of its sales on account and does not offer cash discounts. The firm's credit sales, collections from customers, and write-offs of uncollectible accounts for the three-year period are summarized below: , Year Sales Collections Accounts Written Off 2012 $1,802,000 $1,766,000 $10,600 2013 2,052,000 1,728,000 11,600 2014 1,974,000 1,876,000 13,000 Required If the Wallbrook Company used the allowance method of recognizing credit losses and provided for such losses at the rate of 1 percent of credit sales, what amounts in Accounts Receivable and the Allowance for Doubtful Accounts would appear on the firm's balance sheet at the end of 2014? What total amount of bad debts expense should appear on the firm's income statement during the three year period? Balance in Accounts Receivable at year end, 2014 Allowance for Doubtful Accounts Balance at year end 2014 Bad Debts Expense
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.
Allowance Method The Wallbrook Company, which has been in business for three years, makes all of its sales on account and does not offer cash discounts. The firm's credit sales, collections from customers, and write-offs of uncollectible accounts for the three-year period are summarized below:
Year |
Sales |
Collections |
Accounts Written Off |
|---|---|---|---|
| 2012 | $1,802,000 | $1,766,000 | $10,600 |
| 2013 | 2,052,000 | 1,728,000 | 11,600 |
| 2014 | 1,974,000 | 1,876,000 | 13,000 |
Required
If the Wallbrook Company used the allowance method of recognizing credit losses and provided for such losses at the rate of 1 percent of credit sales, what amounts in Accounts Receivable and the Allowance for Doubtful Accounts would appear on the firm's balance sheet at the end of 2014? What total amount of
| Balance in Accounts Receivable at year end, 2014 | |
| Allowance for Doubtful Accounts Balance at year end 2014 | |
| Bad Debts Expense |
Allowance method: In this method a expected amount is set aside as a reserve for bad debts which are expected in future as a percentage of credit sales.
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