During the first year of operations, Family Ventures, a Boston-based construction company, had sales of $4,350,000, wrote off $35,700 of accounts as uncollectible using direct write-off method, and reported net income of $521,000. Required: If the company were to use the allowance method with uncollectible estimate of 1% of sales: Determine what the net income would have been under the allowance method
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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 first year of operations, Family Ventures, a Boston-based construction company, had sales of $4,350,000, wrote off $35,700 of accounts as uncollectible using direct write-off method, and reported net income of $521,000.
Required:
If the company were to use the allowance method with uncollectible estimate of 1% of sales: Determine what the net income would have been under the allowance method
Sales:
Sales include a number of goods and services sold by the organization during their accounting period.
Allowance method:
Under this method, there is an estimate of an uncollected account receivable on the sales value.
A net income or earning of a business during its accounting period is called net income. It is calculated by deducting expenses from revenue. If expenses are more than the revenue that results net loss.
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