Seaforth International wrote off the following accounts receivable as uncollectible for the year ending December 31: Customer Amount Kim Abel $ 24,300 Lee Drake 31,195 Jenny Green 29,715 Mike Lamb 17,890 Total $103,100 The company prepared the following aging schedule for its accounts receivable on December 31: Aging Class (Number of Days Past Due) Receivables Balance on December 31 Estimated Percent of Uncollectible Accounts 0–30 days $ 735,000 1% 31–60 days 290,000 2 61–90 days 111,000 15 91–120 days 70,000 30 More than 120 days 94,000 60 Total receivables $1,300,000 A. Journalize the write-offs under the direct write-off method. If no entry is required, simply skip to the next transaction. Refer to the Chart of Accounts for exact wording of account titles. B. Journalize the write-offs and the year-end adjusting entry under the allowance method, assuming that the allowance account had a beginning balance of $89,000 and the company uses the analysis of receivables method. If no entry is required, simply skip to the next transaction. Refer to the Chart of Accounts for exact wording of account titles. C. How much higher (lower) would Seaforth International’s net income have been under the allowance method than under the direct write-off method?
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.
Seaforth International wrote off the following
|
Customer |
Amount |
|
Kim Abel |
$ 24,300 |
|
Lee Drake |
31,195 |
|
Jenny Green |
29,715 |
|
Mike Lamb |
17,890 |
|
Total |
$103,100 |
The company prepared the following aging schedule for its accounts receivable on December 31:
|
Aging Class (Number of Days Past Due) |
Receivables Balance on December 31 |
Estimated Percent of Uncollectible Accounts |
|
0–30 days |
$ 735,000 |
1% |
|
31–60 days |
290,000 |
2 |
|
61–90 days |
111,000 |
15 |
|
91–120 days |
70,000 |
30 |
|
More than 120 days |
94,000 |
60 |
|
Total receivables |
$1,300,000 |
|
A. |
Journalize the write-offs under the direct write-off method. If no entry is required, simply skip to the next transaction. Refer to the Chart of Accounts for exact wording of account titles. |
|
B. |
Journalize the write-offs and the year-end |
|
C. |
How much higher (lower) would Seaforth International’s net income have been under the allowance method than under the direct write-off method? |
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