Dapper Hat Makers Company sells merchandise on credit. During the fiscal year ended July 31, the company had net sales of $2,300,000. At the end of the year, it had Accounts Receivable of $600,000 and a debit balance in Allowance for Uncollectible Accounts of $3,400. In the past, approximately 1.4 percent of net sales have proved to be uncollectible. Also, an aging analysis of accounts receiv- able reveals that $30,000 of the receivables appears to be uncollectible. Prepare journal entries to record uncollectible accounts expense using (a) the percentage of net sales method and (b) the accounts receivable aging method. (c) what is the resulting balance of allowance for uncollecible accounts under each method? how woukd your answer under each method change if allowance for uncollectible accounts had a credit balance of $3,400 instead of a debit balance? why do the methods result in different balances?
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.
Dapper Hat Makers Company sells merchandise on credit. During the fiscal year ended July 31, the company had net sales of $2,300,000. At the end of the year, it had Accounts Receivable of $600,000 and a debit balance in Allowance for Uncollectible Accounts of $3,400. In the past, approximately 1.4 percent of net sales have proved to be uncollectible. Also, an aging analysis of accounts receiv- able reveals that $30,000 of the receivables appears to be uncollectible.
Prepare
(a) the percentage of net sales method and
(b) the accounts receivable aging method.
(c) what is the resulting balance of allowance for uncollecible accounts under each method? how woukd your answer under each method change if allowance for uncollectible accounts had a credit balance of $3,400 instead of a debit balance? why do the methods result in different balances?
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