Adriana Lopez, owner of Success Systems, realizes that she needs to begin accounting for bad debts expense.
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1. Prepare the adjusting entry needed for Success Systems to recognize bad debts expense on March 31, 2010, under each of the following independent assumptions (assume a zero unadjusted balance in the Allowance for Doubtful Accounts at March 31).
a. Bad debts are estimated to be 1% of total revenues. (Round amounts to the nearest dollar.)
b. Bad debts are estimated to be 2% of accounts receivable. (Round amounts to the nearest dollar.)
2. Assume that Success Systems’ Accounts Receivable balance at June 30, 2010, is $20,250 and that one account of $100 has been written off against the Allowance for Doubtful Accounts since March 31, 2010. If Lopez uses the method prescribed in Part 1b, what adjusting journal entry must be made to recognize bad debts expense on June 30, 2010?
3. Should Lopez consider adopting the direct write-off method of accounting for bad debts expense rather than one of the allowance methods considered in part 1? Explain.
Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...
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