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Determining Bad Debt Amount

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3. After examining the records of AIS Consultants Incorp., you determined the following end-of-year amounts:

2006 2005
Credit Sales 200,000 160,000
Accounts Receivable 45,000 40,000
Allowance for Bad Debt 2,000 1,000

AIS Consultants uses the percentage-of-sales method to estimate bad debts and, based on past experience, estimates that 5 percent of credit sales will be uncollectible

Determine the amount of accounts receivable that were actually written off during 2006 and the amount of cash that was collected from customer accounts.

4. Match each of the following accounting concepts with its proper description.

a. An entry on the left side of a ledger account.
b. Gives assurance that the total dollars of debits recorded in the accounting system equals the total dollars of credits recorded in the accounting system.
c. Used to increase a liability or to decrease an asset account.
d. Entries required at the end of a period, usually due to the passage of time rather than a specific transaction.
e. The process used to accumulate all transactions that affect a particular account.
f. The process of analyzing business events, collecting and processing information relating to those events, and summarizing that information in report form.
g. A step in transferring the balances in revenue and expense accounts to retained earnings
h. A summary of the accounts involved in a particular transaction and the amounts by which they are increased or decreased.
i. The collection of all of a company's accounts.
j. A place where all transactions related to a specific item are recorded.
k. A chronological list of transactions entered into by a firm.
1. account
2. accounting cycle
3. adjusting entry
4. closing entry
5. credit
6. debit
7. journal
8. journal entry
9. ledger
10. posting
11. trial balance


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Solution Summary

The solution is concerned with calculating actual bad debt levels from given financials and gives a detailed explanation of how the numbers were arrived at.

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To solve this problem, pay close attention to the key piece of information provided:

The fact that 5% of credit sales are estimated to be uncollectible.

Since the company uses the percent of sales method, and they use the 5% rule, then they would have estimated that $10,000 worth of credit sales would have been uncollectible. In other words, the company would have put $10,000 into the ...

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