Computing Bad Debts Under the Allowance Method Based on Receivables A company has a credit balance of $100 in its allowance for doubtful accounts. The amount of credit sales for the period is $160,000, and the balance in accounts receivable is $200. Assume that the expected credit losses are estimated to be 9% of accounts receivable. a. What is (1) bad debt expense for the year and (2) the ending balance in the allowance for doubtful accounts? 1. Bad debt expense Answer 2. Allowance for doubtful accounts Answer b. How would the answer to part a change (if at all) if the company had a debit balance of $1,200 in its allowance for doubtful accounts before any adjustment? 1. Bad debt expense Answer 2. Allowance for doubtful accounts Answer
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.
Computing
A company has a credit balance of $100 in its allowance for doubtful accounts. The amount of credit sales for the period is $160,000, and the balance in
a. What is (1) bad debt expense for the year and (2) the ending balance in the allowance for doubtful accounts?
| 1. | Bad debt expense | Answer |
| 2. | Allowance for doubtful accounts | Answer |
b. How would the answer to part a change (if at all) if the company had a debit balance of $1,200 in its allowance for doubtful accounts before any adjustment?
| 1. | Bad debt expense | Answer |
| 2. | Allowance for doubtful accounts | Answer |
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