Averys All-Natural Company supplies wigs and hair care products to beauty salons throughout Texas and the Southwest. The accounts receivable clerk for Averys All-Natural prepared the following aging-of-receivables schedule as of the end of business on December 31, 20Y7: Days Past Due Customer Balance Not Past Due 1–30 31–60 61–90 91–120 Over 120 AAA Beauty 27,500 27,500 Amelia's Wigs 3,750 3,750 Zim's Beauty 1,650 1,650 Totals 1,100,000 750,000 180,000 75,000 45,000 22,000 28,000 Averys All-Natural Company has a past history of uncollectible accounts by age category, as follows: Age Class Percent Uncollectible Not past due 1 % 1–30 days past due 3 31–60 days past due 7 61–90 days past due 16 91–120 days past due 40 Over 120 days past due 90 Instructions: 1. Estimate the allowance for doubtful accounts, based on the aging-of-receivables schedule. fill in the blank 1 2. Assume that the allowance for doubtful accounts for Averys All-Natural Company has a negative balance of $(2,250) before adjustment on December 31, 20Y7. Illustrate the effect on the accounts and financial statements of the adjustment for uncollectible accounts. Financial Statement Effects Balance Sheet Assets = Liabilities + Stockholders' Equity - = + 20Y7 Dec. 31 fill in the blank 6 fill in the blank 7 fill in the blank 8 fill in the blank 9 Statement of Cash Flows Income Statement fill in the blank 11 fill in the blank 13 3. Averys All-Natural Company reported credit sales of $2,400,000 during 20Y7. Assume that instead of using the analysis of receivables method of estimating uncollectible accounts, Averys All-Natural uses the percent of sales method and estimates that 2.5% of sales will be uncollectible. Illustrate the effect on the accounts and financial statements of the adjustment for uncollectible accounts using the percent of sales method. Financial Statement Effects Balance Sheet Assets = Liabilities + Stockholders' Equity - = + 20Y7 Dec. 31 fill in the blank 18 fill in the blank 19 fill in the blank 20 fill in the blank 21 Statement of Cash Flows Income Statement fill in the blank 23 fill in the blank 25
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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Averys All-Natural Company supplies wigs and hair care products to beauty salons throughout Texas and the Southwest. The accounts receivable clerk for Averys All-Natural prepared the following aging-of-receivables schedule as of the end of business on December 31, 20Y7:
Days Past Due Customer Balance Not Past
Due1–30 31–60 61–90 91–120 Over 120 AAA Beauty 27,500 27,500 Amelia's Wigs 3,750 3,750 Zim's Beauty 1,650 1,650 Totals 1,100,000 750,000 180,000 75,000 45,000 22,000 28,000
Averys All-Natural Company has a past history of uncollectible accounts by age category, as follows:
Age Class Percent
UncollectibleNot past due 1 % 1–30 days past due 3 31–60 days past due 7 61–90 days past due 16 91–120 days past due 40 Over 120 days past due 90 Instructions:
1. Estimate the allowance for doubtful accounts, based on the aging-of-receivables schedule.
fill in the blank 12. Assume that the allowance for doubtful accounts for Averys All-Natural Company has a negative balance of $(2,250) before adjustment on December 31, 20Y7. Illustrate the effect on the accounts and financial statements of the adjustment for uncollectible accounts.
Financial Statement Effects Balance Sheet Assets = Liabilities + Stockholders' Equity - = + 20Y7 Dec. 31 fill in the blank 6 fill in the blank 7 fill in the blank 8 fill in the blank 9 Statement of Cash Flows Income Statement fill in the blank 11 fill in the blank 13 3. Averys All-Natural Company reported credit sales of $2,400,000 during 20Y7. Assume that instead of using the analysis of receivables method of estimating uncollectible accounts, Averys All-Natural uses the percent of sales method and estimates that 2.5% of sales will be uncollectible. Illustrate the effect on the accounts and financial statements of the adjustment for uncollectible accounts using the percent of sales method.
Financial Statement Effects Balance Sheet Assets = Liabilities + Stockholders' Equity - = + 20Y7 Dec. 31 fill in the blank 18 fill in the blank 19 fill in the blank 20 fill in the blank 21 Statement of Cash Flows Income Statement fill in the blank 23 fill in the blank 25 4. Assume that on March 4, 20Y8, Averys All-Natural wrote off the $2,950 account of Superior Images as uncollectible. Illustrate the effect on the accounts and financial statements of the write-off of the Superior Images account.
If no account or activity is affected, select "No effect" from the dropdown and leave the corresponding number entry box blank. Enter account decreases,
cash outflows , and the income statement effects that decrease net income as negative amounts. However, for contra asset accounts, enter account increases as a negative value.Financial Statement Effects Balance Sheet Assets = Liabilities + Stockholders' Equity - = + 20Y8 Mar. 4 fill in the blank 30 fill in the blank 31 fill in the blank 32 fill in the blank 33 Statement of Cash Flows Income Statement fill in the blank 35 fill in the blank 37 5. Assume that on August 17, 20Y8, Superior Images paid $2,950 on its account. Illustrate the effect on the accounts and financial statements of reinstating and collecting the Superior Images account.
(a) Reinstatement
If no account or activity is affected, select "No effect" from the dropdown and leave the corresponding number entry box blank. Enter account decreases, cash outflows, and the income statement effects that decrease net income as negative amounts. However, for contra asset accounts, enter account increases as a negative value.
Financial Statement Effects Balance Sheet Assets = Liabilities + Stockholders' Equity - = + 20Y8 Aug. 17 fill in the blank 42 fill in the blank 43 fill in the blank 44 fill in the blank 45 Statement of Cash Flows Income Statement fill in the blank 47 fill in the blank 49 (b) Collection
If no account or activity is affected, select "No effect" from the dropdown and leave the corresponding number entry box blank. Enter account decreases, cash outflows, and the income statement effects that decrease net income as negative amounts. However, for contra asset accounts, enter account increases as a negative value.
Financial Statement Effects Balance Sheet Assets = Liabilities + Stockholders' Equity + = + 20Y8 Aug. 17 fill in the blank 54 fill in the blank 55 fill in the blank 56 fill in the blank 57 Statement of Cash Flows Income Statement fill in the blank 59 fill in the blank 61 6. Assume that instead of using the allowance method, Averys All-Natural uses the direct write-off method. Illustrate the effect on the accounts and financial statements of the following:
a. The write-off of the Superior Images account on March 4, 20Y8.
Financial Statement Effects Balance Sheet Assets = Liabilities + Stockholders' Equity + = + 20Y8 Mar. 4 fill in the blank 66 fill in the blank 67 fill in the blank 68 fill in the blank 69 Statement of Cash Flows Income Statement fill in the blank 71 fill in the blank 73
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