Prepare the adjusting journal entries to record the credit losses for the following independent situations. Required: (Explanation for the journal entry is NOT required.) a. The Allowance for Impairment has a S1,500 credit balance prior to adjustment. Net credit sales during the year are $425,000 and 4% are estimated to be uncollectible. Assume the income statement approach is used. b. The Allowance for Impairment has a $300 debit balance prior to adjustment. Based on an aging schedule of accounts receivable prepared on December 31, S18,100 of accounts receivable are estimated to be uncollectible. Assume the statement of financial position approach is used. c. Explain how the transaction in (b) affects the accounting equation.
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.
Step by step
Solved in 3 steps with 2 images