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Chap 9.pdf - Chap 9: Receivables: A/R and bad debt: When we...

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Chap 9: Receivables: A/R and bad debt: When we expect that we will lose part of the A/R we create an account to decrease A/R This account is called Allowances for Doubtful Accounts (ADA). This account is contra (anti) assets (increase on credit and decrease on debit). Example: if I am expecting to have $20 as bad debt the following entry is done: Bad Debt Expense 20 ADA 20 Calculation of Bad Debt Expense: 1.% of Sales: 2.% of Receivables (Aging Method) 1.% of Sales: A/R = 150,000 ADA = 7,000 Sales = 200,000 Bad Debt = 2% of sales Bad debt exp = 200,000 * 0.02 = 4,000 Bad Debt Expense 4,000 ADA 4,000 ADA 7,000 1/1 4,000 31/12 11,000 31/12 In balance sheet: A/R: 150,000 Less: ADA 11,000 Net Receivables: 139,000
2.% of Receivables (Aging method): Days A/R % of bad debt Bad Debt 1-30 A 10,000 3% 300 (10,000*0.03) 31-60 B 25,000 15% 3,750 (25,000*0.15) 61-90 C 15,000 25% 3,750 (15,000*0.25) 91 and above D 5,000 40% 2,000 (5,000*0.4) Total 55,000 9,800 ADA beg balance is 1,800 on credit ADA 1,800 8,000 9,800 Bad Debt Expense 8,000 ADA 8,000 Writing off an account: A customer with an account = $1,000 has bankrupted.
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1966, 1981, 1986, 1973, 1985

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