Modern office has 3474487 of credit sales for the year and 59665 of outstanding account receivable and 1108 balance of allowance for doubtful account(AFDA) on December 31. Modern Office estimates that either 0.1% of credit sales or 8% or outstanding account receivable will not be collectible and wants to set up an AFDA. How much is bad debt expense for the year under the Percentage of Sales (Income Statement) Approach? ENTER NUMBERS ONLY, DECIMAL IS ALLOWED; DO NOT USE "$" OR "%" OR "," AND ROUND YOUR ANSWER TO 2 DECIMAL POINTS. Answer:
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.
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