Year of Origin of Accounts Receivable Written Off as Uncollectible Uncollectible Accounts Written Off Year Sales 2nd 3rd 4th 1st 1st $12,500,000 $18,000 $18,000 $21,200 2nd 14,800,000 9,000 30,200 3rd $27,000 18,000,000 39,900 3,600 9,300 4th $35,000 24,000,000 52,600 5,100 12,500 Instructions 1. Assemble the desired data, using the following column headings: Bad Debt Expense Increase (Decrease) in Amount of Expense Expense Actually Reported Expense Based on Balance of Allowance Account, End of Year Year Estimate Experience during the first four years of operations indicated that the receivables either were collected within two years or had to be written off as uncol- lectible. Does the estimate of ¼% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years? Explain. 2.
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.
Digital Depot Company, which operates a chain of 40 electronics supply stores, has just completed its fourth year of operations. The direct write-off method of recording
of ¼% of sales would have had on the amount of bad debt expense reported for each of the past four years. It is also considered desirable to know what the balance of Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts:
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