Allowance Method for Accounting for Bad Debts At the beginning of 2017, EZ Tech Company's Accounts Receivable balance was $217,000, and the balance in Allowance for Doubtful Accounts was $3,700. EZ Tech's sales in 2017 were $1,630,000, 80% of which were on credit. Collections on account during the year were $1,040,000. The company wrote off $6,000 of uncollectible accounts during the year. Required: 2. Identify and analyze the adjustments to recognize bad debts assuming that (a) bad debts expense is 4% of credit sales and (b) amounts expected to be uncollectible are 7% of the year-end accounts receivable. a. Identify and analyze the adjustments to recognize bad debts assuming that bad debts expense is 4% of credit sales. Activity Investing Accounts Allowance for Doubtful Accounts Decrease, Bad Debts Expense Decrease Statement(s) Balance Sheet and Income Statement How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. If a contra account is decreased, it will have the effect of increasing the corresponding financial statement item. Balance Sheet Income Statement Stockholders' Net Assets = Liabilities + Equity Revenues – Expenses = Income fill in the blank f728fb052f98048_2 fill in the blank f728fb052f98048_4 fill in the blank f728fb052f98048_5 fill in the blank f728fb052f98048_7 fill in the blank f728fb052f98048_9 fill in the blank f728fb052f98048_10 b. Identify and analyze the adjustments to recognize bad debts assuming that amounts expected to be uncollectible are 7% of the year-end accounts receivable. Activity Operating Accounts Allowance for Doubtful Accounts Decrease, Bad Debts Expense Increase Statement(s) Income Statement only How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. If a contra account is decreased, it will have the effect of increasing the corresponding financial statement item. Balance Sheet Income Statement Stockholders' Net Assets = Liabilities + Equity Revenues – Expenses = Income fill in the blank 8570c608ffff03b_2 fill in the blank 8570c608ffff03b_4 fill in the blank 8570c608ffff03b_5 fill in the blank 8570c608ffff03b_7 fill in the blank 8570c608ffff03b_9 fill in the blank 8570c608ffff03b_10 Feedback 3. What is the net realizable value of accounts receivable on December 31, 2017, under each assumption in part (2)? Using the percentage of sales approach, the net realizable value of the receivables is? $fill in the blank 1b0583ff4068020_1 Using the percentage of year-end receivables approach, the net realizable value of the receivables is? $fill in the blank 1b0583ff4068020_2
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.
Allowance Method for Accounting for
At the beginning of 2017, EZ Tech Company's Accounts Receivable balance was $217,000, and the balance in Allowance for Doubtful Accounts was $3,700. EZ Tech's sales in 2017 were $1,630,000, 80% of which were on credit. Collections on account during the year were $1,040,000. The company wrote off $6,000 of uncollectible accounts during the year.
Required:
2. Identify and analyze the adjustments to recognize bad debts assuming that (a) bad debts expense is 4% of credit sales and (b) amounts expected to be uncollectible are 7% of the year-end accounts receivable.
a. Identify and analyze the adjustments to recognize bad debts assuming that bad debts expense is 4% of credit sales.
| Activity | Investing |
| Accounts | Allowance for Doubtful Accounts Decrease, Bad Debts Expense Decrease |
| Statement(s) | Balance Sheet and Income Statement |
How does this entry affect the
If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. If a contra account is decreased, it will have the effect of increasing the corresponding financial statement item.
| Balance Sheet | Income Statement | |||||||||||||
| Stockholders' | Net | |||||||||||||
| Assets | = | Liabilities | + | Equity | Revenues | – | Expenses | = | Income | |||||
| fill in the blank f728fb052f98048_2 | fill in the blank f728fb052f98048_4 | fill in the blank f728fb052f98048_5 | fill in the blank f728fb052f98048_7 | fill in the blank f728fb052f98048_9 | fill in the blank f728fb052f98048_10 |
b. Identify and analyze the adjustments to recognize bad debts assuming that amounts expected to be uncollectible are 7% of the year-end accounts receivable.
| Activity | Operating |
| Accounts | Allowance for Doubtful Accounts Decrease, Bad Debts Expense Increase |
| Statement(s) | Income Statement only |
How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. If a contra account is decreased, it will have the effect of increasing the corresponding financial statement item.
| Balance Sheet | Income Statement | |||||||||||||
| Stockholders' | Net | |||||||||||||
| Assets | = | Liabilities | + | Equity | Revenues | – | Expenses | = | Income | |||||
| fill in the blank 8570c608ffff03b_2 | fill in the blank 8570c608ffff03b_4 | fill in the blank 8570c608ffff03b_5 | fill in the blank 8570c608ffff03b_7 | fill in the blank 8570c608ffff03b_9 | fill in the blank 8570c608ffff03b_10 |
3. What is the net realizable value of accounts receivable on December 31, 2017, under each assumption in part (2)?
Using the percentage of sales approach, the net realizable value of the receivables is?
$fill in the blank 1b0583ff4068020_1
Using the percentage of year-end receivables approach, the net realizable value of the receivables is?
$fill in the blank 1b0583ff4068020_2
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