PowerPoint Author Brandy Mackintosh CA Learning Objective 81 Describe the tradeoffs of extending credit Pros and Cons of Extending Credit Disadvantages Increased wage costs Bad debt costs ID: 644385
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Slide1
Chapter 8
Receivables, Bad Debt Expense, and Interest Revenue
PowerPoint Author: Brandy Mackintosh, CASlide2
Learning Objective 8-1
Describe the trade-offs of extending credit.Slide3
Pros and Cons of Extending Credit
Disadvantages
Increased wage costs.Bad debt costs.Delayed receipt of cash.
Advantage
Increases the seller’s revenues.Slide4
Learning Objective 8-2
Estimate and report the effects of uncollectible accounts.Slide5
Record sales on account
dr
Accounts Receivable
cr
Sales Revenue
Balance Sheet
Cash
Accounts Receivable
Inventory
…
Income Statement
Sales Revenue
Cost of Goods SoldGross Profit…
Bad debt known
Accounts Receivable and Bad Debts
Jan. 1Slide6
Record sales on account
dr
Accounts Receivable
cr
Sales Revenue
Balance Sheet
Cash
Accounts Receivable
Inventory
…
Income Statement
Sales Revenue
Cost of Goods Sold
Gross Profit …
Bad debt known
Balance Sheet
Cash
Accounts Receivable
Less: Allowance for Doubtful Accounts
Accounts Receivable, Net
Inventory
…
Income Statement
Sales Revenue
Cost of Goods Sold
Gross Profit
Bad Debt Expense
…
Accounts Receivable and Bad Debts
Record estimate of bad debts
Jan. 1
Jan. 31
dr
Bad Debt Expense (+E, -SE) cr Allowance for Doubtful Accounts (+xA, -A)Slide7
Record sales on account
dr
Accounts Receivable
cr
Sales Revenue
Balance Sheet
Cash
Accounts Receivable
Inventory
…
Bad debt known
Balance Sheet
Cash
Accounts Receivable
Less: Allowance for Doubtful Accounts
Accounts Receivable, Net
Inventory
…
Accounts Receivable and Bad Debts
Record estimate of bad debts
Jan. 1
Jan. 31
dr
Bad Debt Expense (+E, -SE)
cr
Allowance for Doubtful Accounts (+xA, -A)
dr
Allowance for Doubtful Accounts (-xA)
cr
Accounts Receivable(-A)Slide8
Allowance Method
The allowance method follows a two-step process, described below:
Make an end-of-period adjustment to record the estimated bad debts in the period credit sales occur.Remove (“write off”) specific customer balances when they are known to be uncollectible.Slide9
1. Adjust for Estimated Bad Debts
Assume that
VFC
estimates $900 in bad debts at the end of the accounting period.
1
Analyze
Liabilities
Assets
=
Stockholders’ Equity
+
Allowance for Doubtful
Accounts (+xA) -900
Bad Debt
Expense (+E) -900
2
Record
Bad Debt Expense
Allowance for Doubtful Accounts (+xA)
900900Slide10
1. Adjust for Estimated Bad DebtsSlide11
2. Remove (Write-off) Specific Customer Balances
VFC
writes off
an $800
receivable from Fast
Fashions
because the company could not pay its account.
1
Analyze
Liabilities
Assets
=
Stockholders’ Equity
+
Accounts
Receivable -800Allowance for DoubtfulAccounts (-xA) +800
2
Record
Allowance for Doubtful Accounts (-xA)
Accounts Receivable
800800Slide12
2. Remove (Write-off) Specific Customer Balances
Bad Debt Expense
Allowance for Doubtful Accounts (+xA)900
900
Allowance for Doubtful Accounts (-xA)
Accounts Receivable
800
800
1/1 Bal.
1/31 Bal.
End Bal.
(2) Write-off
Accounts Receivable
(A)
dr +cr -200,000200,000199,200
800
(2) Write -off
1/1 Bal.(1) Estimate1/31 Bal.End Bal.Allow. For Doubtful Accts. (xA)dr -cr +
800
14,10090015,00014,200
1/1 Bal.
(1) Estimate
1/31 Bal.
Bad Debt Expense
(E, SE)
dr +
cr -
0
900
900Slide13
Methods for Estimating Bad Debts
There are two acceptable methods of estimating the bad debts in a given period.
Percentage of Credit Sales Method.Aging of Accounts Receivable.Simpler to apply.
More accurateSlide14
Percentage of Credit Sales Method
The percentage of credit sales method estimates bad debt expense by multiplying the historical percentage of bad debt losses by the current period’s credit sales.Slide15
Percentage of Credit Sales Method
VFC
has experienced bad debt losses of ¾ of 1 percent of credit sales in prior periods. Credit sales in January total $120,000,
2
Record
Bad Debt Expense
Allowance for Doubtful Accounts (+xA)
900
900Slide16
Aging of Accounts Receivable
While the percentage of credit sales method focuses on estimating Bad Debt Expense (
income statement approach
) for the period, the aging of accounts receivable method focuses on estimating the ending balance in the Allowance for Doubtful Accounts (
balance sheet approach
).
The aging method gets its name because it is based on the “age” of each amount in Accounts Receivable at the end of the period. The older and more overdue an account receivable becomes, the less likely it is to be collectible.Slide17
Aging of Accounts Receivable
VFC
applies the aging of accounts receivable method to its Accounts Receivable balances
on February 28, after taking into account February sales and cash collections. The
method includes three steps:
(1)
Prepare an aged list of accounts receivable,
(2)
Estimate bad debt loss percentages for each category, and
(3)
Compute the total estimated bad debts.
Age Accounts Receivable.
Step
1Slide18
Aging of Accounts Receivable
Estimate bad debt loss percentages for each category.
Step
2Slide19
Aging of Accounts Receivable
Compute the total estimated bad debts.Step3Slide20
Aging of Accounts Receivable
AJE =
($15,500 - $14,200) = $1,300Slide21
Aging of Accounts Receivable
Prepare the AJE for Bad Debt Expense at
February 28.
1
Analyze
Liabilities
Assets
=
Stockholders’ Equity
+
Allowance for Doubtful
Accounts (+xA) -1,300
Bad Debt
Expense (+E) -1,300
2
Record
Bad Debt Expense
Allowance for Doubtful Accounts (+xA)
1,3001,300
3
Summarize
Unadj. Bal.
AJE
Adj. Bal.
Allow. For Doubtful Accts (xA)
dr -
cr +
14,200
1,300
15,500
Beg. Bal.
AJE
End Bal.
Bad Debt Expense (E,SE)
dr +
cr -9001,3002,200Slide22
Other Issues
Revising Estimates
-- Bad debt estimates always differ from the amounts that are later written off. If these differences are material, companies are required to revise their bad debt estimates for the current period.
Account Recoveries
-- Collection of a previously written off account is called a recovery
and it is accounted for in two parts. First, put the receivable back on the books by recording the opposite of the write-off. Second, record the collection of the account.Slide23
Other Issues
Let’s assume that
VFC collects the $800 from Fast Fashions that was previously written off. This recovery would be recorded with the following journal entries:
(1) Reverse the write-off.
(2) Record the collection.Slide24
Learning Objective 8-3
Compute and report interest on notes receivable.Slide25
Notes Receivable and Interest Revenue
A company reports Notes Receivable if it uses a
promissory note to document its right to collect money from another party. Unlike accounts receivable, which are generally interest free, notes receivable charge interest from the day they are created to the day they are due (their maturity date).Slide26
Calculating Interest
Interest (
I
) = Principal (
P
) × Interest Rate (
R
) × Time (
T
)
The time period for
interest calculation
The amount of the
note receivable
The annual interest rate
charged on the noteSlide27
Recording Notes Receivable and Interest Revenue
The four key events that occur with any note receivable are:
1
2
3
4
Date of Note Receivable November 1,
2015
Annual Interest Rate 6%
Amount of the Note $100,000
Maturity Date of Note October 31,
2016
Year End of Company December 31,
2015Slide28
(1) Establishing a Note Receivable
Assume that on
November 1, 2015,
VFC lent $100,000 to a company by creating a note that required the company to pay VFC 6 percent interest and the $100,000 principal on October 31, 2016
1
Analyze
Liabilities
Assets
=
Stockholders’ Equity
+
Notes Receivable +100,000
Cash -100,000
2
Record
Notes Receivable
Cash
100,000
100,000Slide29
(2) Accruing Interest Earned
Accrue the interest earned at year-end,
December
31,
2015.
Principal (
P
) × Interest Rate (
R
) × Time (
T
) = Interest (
I
) $100,000 × 6% × 2/12 = $1,000
2Slide30
(2) Accruing Interest Earned
Accrue the interest earned at year-end, December 31,
2015.
1
Analyze
Liabilities
Assets
=
Stockholders’ Equity
+
Interest
Receivable +1,000
Interest
Revenue (+R) +1,000
2
Record
Interest Receivable
Interest Revenue
1,000
1,000Slide31
(3) Recording Interest Received
Record interest received at maturity, October 31,
2016.
Principal (
P
) × Interest Rate (
R
) × Time (
T
) = Interest (
I
)
$100,000 × 6% × 12/12 =
$6,000 Slide32
(3) Recording Interest Received
Record interest received at maturity, October 31,
2016.
2
Record
Cash
Interest Receivable
Interest Revenue
1,000
5,000
6,000
1
Analyze
Liabilities
Assets
=
Stockholders’ Equity
+
Cash +6,000
InterestReceivable -1,000
Interest Revenue (+R) +5,000
$5,000 = $100,000 × 6% × 10/12Slide33
(4) Recording Principal Received
The principal amount of the note is received on October 31,
2016.
1
Analyze
Liabilities
Assets
=
Stockholders’ Equity
+
Cash +100,000
Note
Receivable -100,000
2
Record
Cash
Note Receivable
100,000
100,000Slide34
Learning Objective 8-4
Compute and interpret the receivables turnover ratio.Slide35
Receivables Turnover Analysis
The
receivables turnover ratio indicates how many times, on average, this process of selling and collecting is repeated during the period. The higher the ratio, the faster the collection of receivables.Rather than evaluate the number of times accounts receivable turn over, some people find it easier to think in terms of the number of days to collect receivables (called days to collect).Slide36
Receivables Turnover Analysis
Receivable
TurnoverRatio
=
Net Sales Revenue
Average Net Receivables
(Beginning net receivables + Ending net receivables) ÷ 2
$500,000
$ 50,000
= 10 times
Days to
Collect
=
365
Receivable Turnover Ratio
365
10
= 36.5 daysSlide37
Comparison to Benchmarks
Credit Terms
When companies sell on account, they specify the length of credit period (and any cash discounts for prompt payment). By comparing the number of days to collect to the length of credit period, you can gain a sense of whether customers are complying with the stated policy.Slide38
Speeding Up Collections
Factoring Receivables
One way to speed up collections is to sell outstanding accounts receivable to another company (called a factor). Your company receives cash for the receivables it sells to the factor (minus a factoring fee).Credit Card SalesAnother way to avoid lengthy collection periods is to allow customers to pay for goods using
PayPal or national
credit cards. This not only speeds up the seller’s cash collection, but also reduces losses from customers writing bad
checks. PayPal and Credit
card
companies charge
a
fee for their services.Slide39
Chapter 8
Supplement 8ADirect Write-Off MethodSlide40
Learning Objective 8-S1
Record bad debts using the direct write-off method.Slide41
Direct Write-Off Method
The direct write-off
method does not estimate bad debt. Instead, itreports Sales when they occur and bad debt expense when it is discovered. This method is not acceptable for GAAP.The reason the method isn’t considered GAAP is because it reports receivables at the total amount owed by customers rather than what is estimated to be collectible and it violates the expense recognition principle (matching principle) by
recording bad debt expense in the period the customer’s account is determined to be
bad rather than the period when the credit sales are actually made. Slide42
Direct Write-Off Method
A customer account is determined to
be uncollectible and $1,000 of Bad Debt Expense needs to be recorded.
2
Record
Bad Debt Expense
Accounts Receivable
1,000
1,000Slide43
Chapter 8
Solved ExercisesM8-10, E8-7, E8-8, E8-9, CP8-4, C8-1Slide44
M8-10 Using the Interest Formula to Compute Interest
Complete the following table by computing the missing amounts (
?) for the following independent cases.
Case a. $100,000 × 10% × (6/12) =
$5,000
Case b.
$3,000 ÷ [$50,000 × (9/12)] =
8%
Case c.
[$
4
,000
÷
10%] × (12/12)
= $40,000
a.b.c.
Principal Amount ofNote Receivable$ 100,000$ 50,000
?AnnualInterest Rate10%?10%Time Periodin Months6912Interest
Earned?
$ 3,000$ 4,000Slide45
E8-7 Computing Bad Debt Expense Using Aging of Accounts Receivable Method
Brown Cow Dairy uses the aging approach to estimate Bad Debt Expense. The balance of each account receivable is aged on the basis of three time periods as follows: (1) 1–30 days old, $12,000; (2) 31–90 days old, $5,000; and (3) more than 90 days old, $3,000. Experience has shown that for each age group, the average loss rate on the amount of the receivable due to uncollectibility is (1)
5 percent, (2) 10 percent, and (3) 20 percent, respectively. At December 31 (end of the current year), the Allowance for Doubtful Accounts balance was $800 (credit) before the end-of-period adjusting entry is made.Required:Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts.
What amount should be recorded as Bad Debt Expense for
December 31?
If the unadjusted balance in the Allowance for Doubtful Accounts was a $600 debit balance
,
what
amount of Bad
Debt Expense
should be recorded on December 31?Slide46
E8-7 Computing Bad Debt Expense Using Aging of Accounts Receivable Method
Req. 1
Total
$ 20,000
$ 1,700
>90
$ 3,000
20%
$ 600
31-90
$ 5,000
10%
$ 500
1 - 30
$ 12,0005%$ 600Estimate Balance in AllowanceExisting Credit Balance in AllowanceAdjusting Journal Entry Amount
$ 1,700 800$ 900
Req. 2
Allowance for Doubtful Accounts
800
9001,700Unadj. Bal.AJEBal.
Req. 3
Allowance for Doubtful Accounts
2,300
1,700
AJE
Bal.
600
Unadj. Bal.Slide47
E8-8 Recording and Reporting Allowance for Doubtful Accounts Using the Percentage of Credit Sales and Aging of Accounts Receivable Methods
Innovative Tech, Inc. (ITI) uses the percentage of credit sales method to estimate bad debts each month and then uses the aging method at year-end. During
November, ITI sold services on account for $100,000 and estimated that ½ of one percent of those sales would be uncollectible. At its December 31 year-end, total Accounts Receivable is $89,000, aged as follows: (1) 1–30 days old, $75,000; (2) 31–90 days old, $10,000; and (3) more than 90 days old, $4,000. Experience has shown that for each age group, the average rate of uncollectibility is (1) 10 percent, (2) 20 percent, and (3) 40 percent, respectively. Before the end-of-year adjusting entry is made, the Allowance for Doubtful Accounts has a $1,600 credit balance at December 31.Required:
Prepare the November
adjusting
entry for bad debts.
Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts.
Prepare the December
31
adjusting entry.
Show how the various accounts related to accounts receivable should be shown on the December
31
balance sheet.Slide48
E8-8 Recording and Reporting Allowance for Doubtful Accounts Using the Percentage of Credit Sales and Aging of Accounts Receivable Methods
Req. 3
Allowance for Doubtful Accounts
1,600
9,500
11,100
Unadj. Bal.
AJE
Bal.
Req. 2
Total
$ 89,000
$ 11,100
>90
$ 4,000
40%
$ 1,600
31-90$ 10,00020%$ 2,0001 - 30$ 75,00010%$ 7,500
Req. 1
November 30 AJE
Bad Debt Expense
Allowance for Doubtful Accounts (+xA)
($500 = $100,000 x 0.005)
500
500Slide49
E8-8 Recording and Reporting Allowance for Doubtful Accounts Using the Percentage of Credit Sales and Aging of Accounts Receivable Methods
Req. 4
The accounts related to the accounts receivable can be shown one of two ways on the December
31
balance sheet:
OR
Accounts Receivable
Less: Allowance for Doubtful Accounts
Accounts Receivable, net of allowance
$ 89,000
(11,100)
$ 77,900
Accounts Receivable, net of Allowance for
Doubtful Accounts of $11,100
$ 77,900Slide50
E8-9 Recording and Determining the Effects of Write-Offs, Recoveries, and Bad Debt Expense Estimates on the Balance Sheet and Income Statement.
Fraud Investigators Inc.
operates a fraud detection service. Required:Prepare journal entries for each transaction below. On March 31, 10 customers were billed for detection services totaling $25,000.On October 31, a customer balance of $1,500 from a prior year was determined to be uncollectible and was written off.On December 15, a customer paid an old balance of $900, which had been written off in a prior year.
On December 31, $500 of bad debts were estimated and recorded for the year.
2. Complete the following table, indicating the amount and effect ( + for
increase,
-
for decrease, and NE for no effect) of each transaction. Slide51
E8-9 Recording and Determining the Effects of Write-Offs, Recoveries, and Bad Debt Expense Estimates on the Balance Sheet and Income Statement.
Req. 1
Accounts Receivable
25,000
Service
Revenue
25,000
a.
b.
c.
d.
Bad
Debt Expense 500
Allowance
for Doubtful Accounts (+
xA)
500
Accounts Receivable
900
Allowance
for Doubtful Accounts (+
xA)
900
Cash
900
Accounts Receivable 900
Allowance for Doubtful Accounts (-xA)
1,500 Accounts Receivable 1,500 Slide52
E8-9 Recording and Determining the Effects of Write-Offs, Recoveries, and Bad Debt Expense Estimates on the Balance Sheet and Income Statement.
Req. 2Slide53
CP8-4 Accounting for Accounts and Notes Receivable Transactions
Execusmart Consultants has provided business consulting services for several years. The company uses the percentage of credit sales method to estimate bad debts for internal monthly reporting purposes. At the end of each quarter, the company adjusts its records using the aging of accounts receivable method. The company entered into the following
partial list of transactions.During January, the company provided services for $200,000 on credit.On January 31, the company estimated bad debts using 1 percent of credit sales.On February 4, the company collected $100,000 of accounts receivable.On February 15, the company wrote off a $500 account receivable.
During February, the company provided services for $150,000 on credit.
On February 28, the company estimated bad debts using 1 percent of credit sales.
On March 1, the company loaned $12,000 to an employee who signed a 10% note, due in 3 months.
On March 15, the company collected $500 on the account written off one month earlier.
On March 31, the company accrued interest earned on the note.
On March 31, the company adjusted for uncollectible accounts, based on the aging analysis shown on the next screen. Allowance for Doubtful Accounts has an unadjusted credit balance of $6,000.Slide54
CP8-4 Accounting for Accounts and Notes Receivable Transactions (continued)
Required:
For items a – j, analyze the amount and direction
(+ or -)
of effects on specific financial statement accounts and the overall accounting
equation.
Prepare journal entries for items (a) – (j).
Show
how
Accounts Receivable, Notes Receivable, and their related accounts would
be reported in the current assets section of a classified balance
sheet at the end of the quarter on March 31.
Sales
Revenue and Service Revenue are two income statement accounts that relate to Accounts Receivable. Name two other accounts related to Accounts Receivable and Note Receivable that would be reported on the income statement and indicate whether each would appear before, or after, Income from Operations for Execusmart Consultants.Slide55
CP8-4 Accounting for Accounts and Notes Receivable Transactions
Req.
1 and 2
Accounts Receivable
200,000
Service
Revenue
200,000
Bad Debt Expense
2,000
Allowance
for Doubtful
Accounts(+xA) 2,000Slide56
CP8-4 Accounting for Accounts and Notes Receivable Transactions
Req.
1 and 2
Accounts Receivable
200,000
Service
Revenue
200,000
Bad Debt Expense
2,000
Allowance
for Doubtful
Accounts(+xA) 2,000
Cash
100,000 Accounts Receivable 100,000Slide57
CP8-4 Accounting for Accounts and Notes Receivable Transactions
Req.
1 and 2
Allowance for Doubtful
Accounts(-xA) 500
Accounts
Receivable
500
Accounts Receivable
150,000
Service
Revenue
150,000Slide58
CP8-4 Accounting for Accounts and Notes Receivable Transactions
Req.
1 and 2
Allowance for Doubtful
Accounts(-xA) 500
Accounts
Receivable
500
Accounts Receivable
150,000
Service
Revenue
150,000
Bad Debt Expense
1,500Allowance for Doubtful Accounts (+xA) 1,500Slide59
CP8-4 Accounting for Accounts and Notes Receivable Transactions
Req.
1 and 2
Note Receivable
12,000
Cash 12,000
Accounts Receivable
500
Allowance
for Doubtful
Accounts (+xA)
500
Cash
500
Accounts Receivable 500Slide60
CP8-4 Accounting for Accounts and Notes Receivable Transactions
Req.
1 and 2
Desired $8,390 – Current -$6000 = Adjustment $2,390
Interest Receivable
100
Interest
Revenue
100
Bad Debt Expense
2,390
Allowance
for Doubtful
Accounts (+xA) 2,390Slide61
CP8-4 Accounting for Accounts and Notes Receivable Transactions
Req.
3
Execusmart Consultants would report Bad Debt Expense
before Income
from Operations, and Interest Revenue
after
Income for Operations.
Req.
4
EXECUSMART CONSULTANTS
Partial Balance Sheet
At March 31
Assets
Current Assets:
Accounts Receivable Less: Allowance for Doubtful Accounts Accounts Receivable, Net of Allowance Note Receivable Interest Receivable$ 90,000 8,390$ 81,61012,000
100Slide62
C8-1 Comprehensive Exercise for Recording and Reporting Credit Sales and Bad Debts Using the Aging of Accounts Receivable Method
Okay Optical, Inc. (OOI) began operations in January
selling inexpensive sunglasses to large retailers like Walgreen’s and other smaller stores. Assume the following transactions occurred during its first six months of operations.January 1 - Sold merchandise to Walgreen’s on account for $20,000; the cost of goods to OOI was $12,000.February 12 - Received payment in full from Walgreen’s.March 1 - Sold merchandise to Bravis Pharmaco on account for $3,000; the cost of
goods
to OOI was $1,400.
April 1
- Sold merchandise to
Tony’s Pharmacy
on account for $8,000. The cost to OOI was $4,400.
May 1
- Sold merchandise to Anjuli Stores on account for $2,000; the cost to OOI was $1,200.
June 17
- Received $6,500 on account from
Tony’s Pharmacy.Required:Complete an aged listing of customer accounts at June 30.Estimate the Allowance for Doubtful Accounts required at June 30, assuming the following uncollectible rates: one month, 1 percent; two months, 5 percent; three months, 20 percent; more than three months, 40 percent.Show how OOI would report its accounts receivable on its June 30 balance sheet. What amounts would be reported on an income statement prepared for the six-month period ended June 30?Bonus Question: In July, OOI collected the balance due from Bravis Pharmaco but discovered that the balance due from Tony’s Pharmacy needed to be written off. Using this information, determine how accurate OOI was in estimating the Allowance for Doubtful Accounts needed for each of these two customers and in total.Slide63
C8-1 Comprehensive Exercise for Recording and Reporting Credit Sales and Bad Debts Using the Aging of Accounts Receivable Method
Req. 2
Accounts Receivable
Estimated Uncollectible (%)
Estimated Uncollectible ($)
Total
$ 6,500
$ 1,600
>3 months
$ 3,000
40%
$ 1,200
3 months
$ 1,50020%
$ 3002 months$ 2,0005%$ 100
Req. 1
CustomerAnjuli StoresBravis PharmacoTony’s Pharmacy
WalgreensTotal
June(1 Month)$ ->3 Months$ 3,000$ 3,000
April(3 Months)
$ 1,500
$ 1,500
May
(2 Months)
$ 2,000
$ 2,000
Total
$ 2,000
3,000
1,500
-$ 6,500Slide64
C8-1 Comprehensive Exercise for Recording and Reporting Credit Sales and Bad Debts Using the Aging of Accounts Receivable Method
Req. 3
OKAY OPTICAL, INC.
Partial Balance Sheet
At June
30
Accounts Receivable, Net of Allowance of $1,600 $4,900
OKAY OPTICAL, INC.
Partial Income Statement
For the Six Months Ended June
30
Sales Revenue
Cost of Goods Sold
Gross Profit
Bad Debt Expense
Income from Operations
$
33,000
19,000
14,000
1,600
$12,400Slide65
C8-1 Comprehensive Exercise for Recording and Reporting Credit Sales and Bad Debts Using the Aging of Accounts Receivable Method
Req. 4
OOI did not accurately estimate the precise amounts that would be collected from
each customer
, yet the total estimate was accurate. That is, OOI underestimated the
amount collectible
from Bravis Pharmaco (40% of $3,000, or $1,200, was
estimated uncollectible
where it later turned out to be collectible in full). It overestimated
the amount
collectible from Tony’s Pharmacy (20% of $1,500, or $300, was
estimated uncollectible
where it later turned out to show that $1,500 was uncollectible). Looking
at Tony’s
Pharmacy and Bravis Pharmaco combined, the estimated bad debt for both customers was $1,500, which is almost the same as the amount the company wrote off.Slide66
End of Chapter 8