The F Company uses the allowance method is used to account for uncollectible receivables. It had the following transactions during the year: 05/2020 Received 75% of the P 20,000 balance owed by Webb Co., a bankrupt business. Wrote off remainder as uncollectible. 06/20 Reinstated the account of Zorn Co., amounting to P 5,225 which had been written off in the preceding year as uncollectible. 06/24 Received P 5,225 cash as full payment of Zorn’s account. 07/27 Wrote off the P 2,500 balance owed by Schmich, Inc. which had no assets. 12/31 Based on an analysis of Accounts Receivable, it is determined that P 11,500 will become uncollectible. The balance in Allowance for Doubtful Accounts on December 31 prior to adjustment is P 200 credit.
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 F Company uses the allowance method is used to account for uncollectible receivables. It had the following transactions during the year:
05/2020 Received 75% of the P 20,000 balance owed by Webb Co., a
bankrupt business. Wrote off remainder as uncollectible.
06/20 Reinstated the account of Zorn Co., amounting to P 5,225 which
had been written off in the preceding year as uncollectible.
06/24 Received P 5,225 cash as full payment of Zorn’s account.
07/27 Wrote off the P 2,500 balance owed by Schmich, Inc. which had no
assets.
12/31 Based on an analysis of
11,500 will become uncollectible. The balance in Allowance for
Doubtful Accounts on December 31 prior to adjustment is P 200
credit.
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