Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for bad debt expense is recorded only at December 31, the company’s fiscal year-end. The 2020 balance sheet disclosed the following: Current assets: Receivables, net of allowance for uncollectible accounts of $44,000 $ 502,000 During 2021, credit sales were $1,820,000, cash collections from customers $1,900,000, and $53,000 in accounts receivable were written off. In addition, $4,400 was collected from a customer whose account was written off in 2020. An aging of accounts receivable at December 31, 2021, reveals the following: Percentage of Year-End Percent Age Group Receivables in Group Uncollectible 0−60 days 65 % 4 % 61−90 days 15 10 91−120 days 15 30 Over 120 days 5 50 Required: 1. Prepare summary journal entries to account for the 2021 write-offs and the collection of the receivable previously written off. 2. Prepare the year-end adjusting entry for bad debts according to each of the following situations: Bad debt expense is estimated to be 3% of credit sales for the year. Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable. Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. The allowance for uncollectible accounts is determined by an aging of accounts receivable.
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.
Raintree Cosmetic Company sells its products to customers on a credit basis. An
| Current assets: | ||
| Receivables, net of allowance for uncollectible accounts of $44,000 | $ | 502,000 |
During 2021, credit sales were $1,820,000, cash collections from customers $1,900,000, and $53,000 in
| Percentage of Year-End | Percent | |||
| Age Group | Receivables in Group | Uncollectible | ||
| 0−60 days | 65 | % | 4 | % |
| 61−90 days | 15 | 10 | ||
| 91−120 days | 15 | 30 | ||
| Over 120 days | 5 | 50 | ||
Required:
1. Prepare summary
2. Prepare the year-end adjusting entry for
- Bad debt expense is estimated to be 3% of credit sales for the year.
- Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable.
- Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. The allowance for uncollectible accounts is determined by an aging of accounts receivable.
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