BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

Solutions

Chapter
Section
BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

A firm has consistently adjusted its allowance account at the end of the fiscal year by adding a fixed percent of the period’s sales on account. After seven years, the balance in Allowance for Doubtful Accounts has become very large in relation to the balance in Accounts Receivable. Give two possible explanations.

To determine

Percentage of sales method:

Credit sales are recorded by debiting (increasing) accounts receivable account. The bad debts is a loss incurred out of credit sales, hence uncollectible accounts can be estimated as a percentage of credit sales or total sales.

It is a method of estimating the bad debts (expected loss on extending credit), by multiplying the expected percentage of uncollectible with the total amount of net credit sale (or total sales) for a specific period. Under percentage of sales method, estimated bad debts would be treated as a bad debt expense of the particular period.

To identify: The possible cause behind an enormous increase in allowance for doubtful account in relation to the accounts receivable balance of a firm, at its situation.

Explanation

A firm constantly adjusts its allowance for doubtful accounts, under percentage of sales method for past seven years. This resulted in enormous increase in allowance for doubtful account in relation to the accounts receivable.

The possible cause behind this change is as follows:

  • Excessive balance in allowance for doubtful accounts than the required ba...

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

(Costs in the Short Run) Identify each of the curves in the following graph:

ECON: MICRO4 (New, Engaging Titles from 4LTR Press)

What is data mining?

Accounting Information Systems

What are the various forms of business organization? What are the advantages and disadvantages of each?

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)