included the following: Sales on account were P7,670,000.
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.
The balance sheet for the Litex Corporation on December 31, 2004, includes the following receivables balances:
Notes Receivable P365,000
Less notes discounted 155,000 P210,000
Less allowance for doubtful accounts 41,500 814,500
Interest Receivable 5,250
Transactions during 2005 included the following:
- Sales on account were P7,670,000.
- Cash collected on accounts totaled P5,765,000, which included accounts of P930,000 on which cash discounts of 2% were allowed.
- Notes received in settlement of accounts totaled P825,000
- Notes receivable discounted as of December 31, 2004, were paid at maturity with the exception of one P30,000 note on which the company had to pay the bank P30,900, which included interest and protest fees. It is expected that recovery will be made on this note early 2006.
- Customer’s notes of P600,000 were discounted with recourse during the year, proceeds from their transfer being P585,000. Of this total, P480,000 matured during the year without notice of protest.
- Customer’s accounts of P87,200 were written off during the year as worthless.
- Recoveries of doubtful accounts written off in prior years were P20,200.
- Notes receivable collected during the year totaled P270,000 and interest collected was P24,500.
- On December 31, accrued interest on notes receivable was P6,300.
- Uncollectible accounts are estimated to be 5% of the December 31, 2005 Accounts Receivable balance.
- Cash of P350,000 was borrowed from the bank, accounts receivable of P400,000 being pledged on the loan. Collections of P195,000 had been made on these receivables (included in the total given in transaction (b) and this amount was applied on December 31, 2005, to payment of accrued interest on the loan of P6,000 and the balance to partial payment of the loan.
Determine the adjusted balances of the following accounts as of December 31, 2005:
21.
Notes Receivable (including notes receivable discounted).
a. P320,000 b. P365,000 c. P165,000 d. P285,000
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