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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Aging Method

On January 1, 2019, Smith Inc. has the following balances for accounts receivable and allowance for doubtful accounts:

Accounts Receivable $382,000

Allowance for Doubtful Accounts (a credit balance) 4,200

During 2019, Smith had $2,865,000 of credit sales, collected $2,905,000 of accounts receivable, and wrote off $3,850 of accounts receivable as uncollectible. At year end, Smith performs an aging of its accounts receivable balance and estimates that $3,800 will be uncollectible.

Required:

1. Calculate Smith’s preadjustment balance in accounts receivable on December 31, 2019.

2. Calculate Smith’s preadjustment balance in allowance for doubtful accounts on December 31, 2019.

3. Prepare the necessary adjusting entry for 2019.

To determine

(a)

Aging method:

This is a method in which the receivables are sorted according to their collectable estimation. This is done on the basis of their outstanding invoices period. Basically, aging means to check the how old an outstanding balance of receivable is present in the books.

To calculate:

The pre adjustment balance in accounts receivable on December 31,2019.

Explanation

The Smith Inc. has opening balance of accounts receivable is $3,82,000 and allowance for doubtful debt is $4,200. The company has credit sales of $28,65,000 out of which $29,05,000 is receivable and wrote off the uncollectible amount of $3,850. This is given in the question.

The pre adjustment balance in accounts receivable for the Smith Inc

To determine

(b)

Aging method:

This is a method in which the receivables are sorted according to their collectable estimation. This is done on the basis of their outstanding invoices period. Basically, aging means to check the how old an outstanding balance of receivable is present in the books.

To calculate:

The pre adjustment balance in allowance for doubtful accounts on December 31,2019.

To determine

(c)

Aging method:

This is a method in which the receivables are sorted according to their collectable estimation. This is done on the basis of their outstanding invoices period. Basically, aging means to check the how old an outstanding balance of receivable is present in the books.

The necessary adjusting journal entry.

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