During the year ended December 31, 2015, Kelly’s Camera Shop had sales revenue of $170,000,of which $85,000 was on credit. At the start of 2015, Accounts Receivable showed a $10,000 debitbalance and the Allowance for Doubtful Accounts showed a $600 credit balance. Collections ofaccounts receivable during 2015 amounted to $68,000.Data during 2015 follow:a. On December 10, a customer balance of $1,500 from a prior year was determined to be uncollectible, so it was written off.b. On December 31, a decision was made to continue the accounting policy of basing estimatedbad debt losses on 2 percent of credit sales for the year.Required:1. Give the required journal entries for the two events in December.2. Show how the amounts related to Accounts Receivable and Bad Debt Expense would bereported on the balance sheet and income statement for 2015.3. On the basis of the data available, does the 2 percent rate appear to be reasonable? Explain.
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.
During the year ended December 31, 2015, Kelly’s Camera Shop had sales revenue of $170,000,
of which $85,000 was on credit. At the start of 2015, Accounts Receivable showed a $10,000 debit
balance and the Allowance for Doubtful Accounts showed a $600 credit balance. Collections of
accounts receivable during 2015 amounted to $68,000.
Data during 2015 follow:
a. On December 10, a customer balance of $1,500 from a prior year was determined to be uncollectible, so it was written off.
b. On December 31, a decision was made to continue the accounting policy of basing estimated
Required:
1. Give the required
2. Show how the amounts related to Accounts Receivable and Bad Debt Expense would be
reported on the balance sheet and income statement for 2015.
3. On the basis of the data available, does the 2 percent rate appear to be reasonable? Explain.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
