York Company opened for business on January 1, 2020. The firm had total credit sales of $150,000 during 2020. York Company collected $120,000 from customers during 2020. York Company estimated that 3% of the credit sales in 2020 would be uncollectible. During 2020, the firm wrote off $2,000 of accounts receivable as uncollectible. The firm uses the percentage-of-sales procedure to estimate bad debts expense. York Company will report the following in its 2020 financial statements: Select one: a. Bad debts expense $4,500; Allowance for uncollectibles $4,500 b. Bad debts expense $2,500; Allowance for uncollectibles $4,500 c. Bad debts expense $6,500; Allowance for uncollectibles $4,500 d. Bad debts expense $4,500; Allowance for uncollectibles $2,500 e. Bad debts expense $2,500; Allowance for uncollectibles $2,500
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.
York Company opened for business on January 1, 2020. The firm had total credit sales of $150,000 during 2020. York Company collected $120,000 from customers during 2020. York Company estimated that 3% of the credit sales in 2020 would be uncollectible. During 2020, the firm wrote off $2,000 of accounts receivable as uncollectible. The firm uses the percentage-of-sales procedure to estimate
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