Allowance Method for Accounting for Bad Debts
At the beginning of 2014, EZ Tech Company's Accounts Receivable balance was $165,000, and the balance in Allowance for Doubtful Accounts was $2,800. EZ Tech's sales in 2014 were $1,240,000, 90% of which were on credit. Collections on account during the year were $790,000. The company wrote off $5,000 of uncollectible accounts during the year.
1. How does this entry affect the accounting equation?
Identify and analyze the transactions related to the write-offs of accounts receivable during 2014.
2. Identify and analyze the adjustments to recognize bad debts assuming that bad debts expense is 3% of credit sales.
Identify and analyze the adjustments to recognize bad debts assuming that amounts expected to be uncollectible are 5% of the year-end accounts receivable.
3. What is the net realizable value of accounts receivable on December 31, 2014, under each assumption in part (2)?
Using the percentage of sales approach, the net realizable value of the receivables is?
Using the percentage of year-end receivables approach, the net realizable value of the receivables is?
4. The recognition of bad debts expense - (does not change,increases,reduces) the net realizable value by the amount recorded in bad debts expense and the -(allowance for doubtful accounts, sales on account, the accounts receivable account) The write-off of accounts - (has no effect onincreases,reduces) the net realizable value.