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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

Ingrid Inc. has strict credit policies and only extends credit to customers with outstanding credit history. The company examined its accounts and determined that at January 1, 2019, it had balances in Accounts Receivable and Allowance for Doubtful Accounts of $478,000 and $7,900 (credit), respectively. During 2019, Ingrid extended credit for $3,075,000 of sales, collected $2,715,000 of accounts receivable, and had customer defaults of $4,280. Ingrid performed an aging analysis on its receivables at year end and determined that $6,800 of its receivables will be uncollectible.

Required:

1. Calculate Ingrid’s balance in accounts receivable on December 31, 2019, prior to the adjustment.

2. Calculate Ingrid’s balance in allowance for doubtful accounts on December 31, 2019, prior to the adjustment.

3. Prepare the necessary adjusting entry for 2019.

  1.

To determine

Aging method: This is a method in which the receivables are sorted according to their collectible estimation. This is done on the basis of their outstanding invoices period. Basically, aging means to check 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 I Inc. has an opening balance of accounts receivable is 478,000 and allowance for doubtful debt is $7,900 . The company has credit sales of 3,075,000 out of which 2,715,000 is receivable and the uncollectible amount of 4,280 is wrote off. This is given in the question.

The pre-adjustment balance in accounts receivable for the I Inc. is as follows:

    Accounts Receivables
    ParticularsAmount
      ($)

  2.

To determine

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

To calculate: The pre-adjustment balance in the allowance for doubtful accounts in December 31,2019 .

  3.

To determine

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

The necessary adjusting journal entry.

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