Question

As an alternative to the percent of revenue or sales method, which focuses on estimating the expense of uncollectible accounts, companies may estimate the amount of the adjusting entry to record uncollectible accounts expense using the percent of receivables method. The A/R method of estimating the amount of uncollectible accounts is done by taking a percent of the outstanding receivables balance. The percentage is frequently based on a combination of factors such as historical experience, conditions of the economy, and the company's credit policies.. The percent of receivables method focuses on estimating the most accurate amount for the balance sheet Allowance for Doubtful Accounts account.

Select one:

True

False

You are preparing financial statements and need to make the adjustment to bad debts. You have sales of $100,000 and sales returns of $20,000 and the ending balance in accounts receivable is $100,000. You calculate bad debts to be 1% of ending accounts receivable. What is the balance in the allowance after the adjustment if you have a credit balance in the allowance of $100.

Select one:

a. $1,000

b. $900

c. $1,100

d. 0

Beginning inventory plus all your purchases, plus trans-in, minus returns, discounts and allowances will equal cost of goods available for sale.

Select one:

a. True

b. False

Purchase allowances means, you keep the inventory and the seller gives you a discount on the sales price. This means your inventory costs less.

Select one:

a. True

b. False

Answer 1

1. True
Percentage of receivables methods is the most accurate for estimating the amount for balance sheet for allowance for doubtful debts.

2.Bad Debts=1% on closing accounts receivable i.e 1% of $100,000=1000
Balance in account=1000+100=1100.
3.False
COGS=opening stock+purchases-closing stock.
4.True