Receivables: Companies generally make credit sales to improve their business and expand their customer base. When a credit sales is made the amount that the company has to receive from its customers is known as receivable. Usually company all the customers does not repay the amount they owe to the company and hence there are chances of some not repaying the amount and these are called as bad debts . The company usually estimates that a portion of its receivables will become bad debts and create provisions for the same. Therefore the bad debts for the year is adjusted by transferring the amount to allowance for bad debts account. Aging Method of accounts receivables: Under this method bad debts expenses are estimated by determining the age of the accounts receivable i.e. each accounts receivable are categorized by their age then the amount of default under each category is estimated based on experience and past history. Percentage of Credit Sales Method: Under this method bad debts are estimated as a percentage of credit sale. The percentage is estimated based on previous experience and past history. Prepare adjusting entry for bad debts under the following assumptions. (a) Front Row has performed aging of accounts receivables and estimated that $895 of its accounts receivable will be uncollected. (b) Front row uses percentage of sales method and estimated 2% of credit sales will be uncollectible.
Solution Summary: The author explains that companies make credit sales to improve their business and expand their customer base. The company estimates that a portion of its receivables will become bad debts and create provisions for them.
Definition Definition Money that the business will be receiving from its clients who have utilized the credit provided to buy its goods and services. The credit period typically lasts for a short term, lasting from a few days, a few months, to a year.
Chapter 5, Problem 97.2C
To determine
Concept introduction:
Receivables:
Companies generally make credit sales to improve their business and expand their customer base. When a credit sales is made the amount that the company has to receive from its customers is known as receivable. Usually company all the customers does not repay the amount they owe to the company and hence there are chances of some not repaying the amount and these are called as bad debts. The company usually estimates that a portion of its receivables will become bad debts and create provisions for the same. Therefore the bad debts for the year is adjusted by transferring the amount to allowance for bad debts account.
Aging Method of accounts receivables:
Under this method bad debts expenses are estimated by determining the age of the accounts receivable i.e. each accounts receivable are categorized by their age then the amount of default under each category is estimated based on experience and past history.
Percentage of Credit Sales Method:
Under this method bad debts are estimated as a percentage of credit sale. The percentage is estimated based on previous experience and past history.
Prepare adjusting entry for bad debts under the following assumptions. (a) Front Row has performed aging of accounts receivables and estimated that $895 of its accounts receivable will be uncollected. (b) Front row uses percentage of sales method and estimated 2% of credit sales will be uncollectible.
Ethical Dilemma: Recognition Point and Ethical Considerations
C7. Business Application ▶ Robert Shah, a sales representative for Quality Office
Supplies Corporation, will receive a substantial bonus if he meets his annual sales goal.
The company’s recognition point for sales is the day of shipment. On December 31,
Shah realizes he needs sales of $2,000 to reach his sales goal and receive the bonus. He
calls a purchaser for a local insurance company, whom he knows well, and asks him to
buy $2,000 worth of copier paper today. The purchaser says, “But Robert, that’s more
than a year’s supply for us.” Shah says, “Buy it today. If you decide it’s too much, you
can return however much you want for full credit next month.” The purchaser says,
“Okay, ship it.” The paper is shipped on December 31 and recorded as a sale. On January 15, the purchaser returns $1,750 worth of paper for full credit (approved by Shah)
against the bill. Should the shipment on December 31 be recorded as a…
Qu. 1 Peter Ben-George is a fashion designer, and a novice entrepreneur, having his fashion center located within the East Legon – American House enclave. Mr. Ben-George has just completed a three (3) Day Entrepreneurship workshop organized by Giant Bell Consulting Limited, on the use of bootstrapping method of financing his fashion business. Outline and discuss any five bootstrapping method Mr. Ben-George can adopt to support the financing of his fashion business.
Question 1: Service Costing & ABC Part AAfrican Adventure Ltd offers a series of holiday packages aimed at families, seniors, and corporate groups. The financial controller is preparing for the annual board meeting and is concerned about the loss the business sustained in the past year. He has examined the profits for each of the three departments of the business and it seems that the corporate department is the source of the problem.The financial controller looked at the three packages offered by the corporate department to establish which are profitable or not profitable. The sales and direct cost of each package for the last year are as follows:South Africa Egypt NamibiaNumber of packages sold 10 20 10Number of people per package 5 6 8Revenue per person $18,000 $12,000 $14,000Direct cost per package: Tour leader $5,000 $12,000 $9,000 Tour assistant $2,000 $3,000 $6,000 Air travel $28,000 $30,000 $32,00 Accommodation $15,000 $26,000 $24,000 Equipment hires $4,000 0 $9,000 Meals…
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