Q1) Sparkle Jewels distributes fine stones. It sells on credit to retail jewelry stores and extends terms that require the stores to pay in 60 days. For accounts that are not overdue, Sparkle has found that there is a 95% probability of collection. For accounts up to one month past due, the likelihood of collection decreases to 80%. If accounts are between one and two months past due, the probability of collection is 60%, and if an account is over two months past due, Sparkle Jewels estimates only a 40% chance of collecting the receivable. On December 31, 2017, the balance in Allowance for Doubtful Accounts is $12,300. The amounts of gross receivables by age on this date are as follows: Category _______________Amount Current ................................ $200,000 Past due: Less than one month .............45,000 One to two months .................25,000 Over two months .....................1,000 Required Prepare a schedule to estimate the amount of uncollectible accounts at December 31, 2017. On the basis of the schedule in part (1), identify and analyze the adjustment on December 31, 2017, to estimate bad debts. Show how accounts receivable would be presented on the December 31, 2017, balance sheet
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.
Q1) Sparkle Jewels distributes fine stones. It sells on credit to retail jewelry stores and extends terms that require the stores to pay in 60 days. For accounts that are not overdue, Sparkle has found that there is a 95% probability of collection. For accounts up to one month past due, the likelihood of collection decreases to 80%. If accounts are between one and two months past due, the probability of collection is 60%, and if an account is over two months past due, Sparkle Jewels estimates only a 40% chance of collecting the receivable. On December 31, 2017, the balance in Allowance for Doubtful Accounts is $12,300. The amounts of gross receivables by age on this date are as follows:
Category _______________Amount
Current ................................ $200,000
Past due:
Less than one month .............45,000
One to two months .................25,000
Over two months .....................1,000
Required
- Prepare a schedule to estimate the amount of uncollectible accounts at December 31, 2017.
- On the basis of the schedule in part (1), identify and analyze the adjustment on December 31, 2017, to estimate
bad debts. - Show how accounts receivable would be presented on the December 31, 2017, balance sheet.
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