1) A company begins its operations in 2016. It has sales revenue of $350,000 and collects $290,000in cash for the sales in 2016, leaving $60,000 in accounts receivable at the end of 2016.In 2017, the company sells and delivers product worth $600,000 and collects $560,000 in cash on both current and 2016 sales.In 2018, the company sells and delivers product worth $825,000 and collects $740,000 in cashon both current and previous sales.
a) There are two generally accepted methods to estimating customer collections: the "balancesheet approach" (using percentages of accounts receivable) and the "income statementapproach" (using percentages of sales). What principles can you use to justify one approachover the other to report balances reflecting the collectability of the seller's receivables?
b) Show the entries the seller will make related to the sales and collections activities under eachalternative approach to estimating customer collections, each over the three year period. Use1% of sales for the income statement approach and 6% of receivables for the balance sheetapproach.
c) Say that, on 12/31/2018, the provider has not yet collected the balance owed by two customers.Under what circumstances should the provider specifically write off the balances these two customers owe?
d) What entry would the company make to write off the balances?