Rifle Co. is a distributing company selling toy guns to retailers at 10/15, 5/20, n/30 and it provides for uncollectible accounts based on aging of receivables at year-end. The balance of selected accounts take from the December 31, 2020 statement of financial position are as follows: Accounts Receivable – P19,800,000; Allowance for Bad Debts – P300,000 The following transactions (in summary) affecting accounts receivable occurred during the year ended December 31, 2021: Sales on account - 20,180,000 Cash received from customers - 20,000,000 Cash received includes the following: Customers paying within the 15-day discount period - 9,000,000 Customers paying within the 20-day discount period - 3,800,000 Recovery of accounts written off - 106,000 Accounts receivable written off as worthless - 20,000 An aging of the accounts receivables and uncollectible accounts at December 31, 2021 revealed the following: Probability of Non-collection Age Less than 30 days 31-90 days 91-120 days More than 120 days Amount P4,100,000 5% 2,400,000 8% 563,000 10% Balance 27%
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.
At what amount should
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