Question

Rianna.com uses the allowance method of accounting for bad debts. The company produced the following aging of the accounts receivable at year-end. Number of Days Outstanding Total 0-30 31-60 61-90 91-120 Over 120 Accounts receivable $377,000 $222,000 $90,000 $38,000 $15,000 $12,000 % uncollectible 1% 4% 5% 8% 10% Estimated bad debts $10,120 $2,220 $3,600 $1,900 $1,200 $1,200 Assume the unadjusted balance in Allowance for Doubtful Accounts is a $4,000 debit. (e) Assume that Rianna.com used 3% of total accounts receivable, rather than aging the accounts receivable. Comment on how your results would change. What are the advantages to the company of aging the accounts receivable rather than applying a percentage to total accounts receivable? BI V TTIX E 1 1 E 35 % 2 á 1 T O Word(s)

Answer 1

if the company use 3% of the total account receivable than =3,77,000*3% =11310

at present company not make any thing on the basis of total account receivable. company create on the basis of monthly account receivable.

as per current senior the estimated bad debts is $10,120.

as per my suggestion the bad debts is calculated on the total account receivable. this is not fixed in particular period there is only that percentage are bed debts. suppose in 0-30 may be % of bad debts are 2% than what we can do... so it is advisable to create the bed debts on the basis of total account receivable.