Accounts Receivables Allowance for bad debts
Opening 2008 (Gross) 18,300,000 1,800,000
Add: Credit Sales 56,500,000
74,800,000
Less : Collections 56,900,000
17,900,000
Less:Bad debts written off 1,980,000 -1,9800,000
Year end balance 15,920,000 Bad debt expense 339,200
180,000 + 10% of 15,920,000
Year end balance 2008 10% of 15,92,000 159,200
A. what amount will Georgia report for accounts receivable and the allowance for doubtful accounts at the end of 2008? AR $15,920,000 Allowance $159,200
B. What is the Doubtful Accounts Expense for 2008? $339,200
C. How will the accounts receivable and allowance accounts be presented on the balance sheet? Show the balance sheet.
Assets
Accounts Receivables $15,920,000
Liabilities
Allowance for doubtful accounts $159,200
D. Why do companies record expenses for doubtful accounts based on estimates from receivable or sales during the prior year rather than recording the expense when accounts are written off in a future period?
The allowance method of accounting for bad debts matches the expected loss from uncollectible accounts receivables against the sales they helped produce. Expected losses must be used because management can not identify the customers who will not pay their bills at the time of sale. At the end of each period the allowance method requires management to estimate the total bad debts expected to result from that period’s sales. An allowance is then recorded for this expected loss.
As such, Bad debts expense is charged to the period when the related sales are recognized. It is reported on the current period income statement as an administrative expense and accounts receivable are reported on the balance sheet at the estimated amount of cash to be collected
E. If estimated uncollectible as a percentage of sales or receivable were to increase over several years, what information might this provide to decision makers?
If estimated uncollectible as a percentage of sales or receivables increase over several years it will indicate inefficient working capital management and inefficient collections management.
