Bad Debts in Accounting
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Chatter Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Chatter’s accounts receivable account is $556,000, and the allowance for doubtful accounts has a debit balance of $5,000. The year-end balance reported in the balance sheet for the allowance for doubtful accounts will be based on the aging schedule shown here:
|
Days Account Outstanding |
Amount |
Probability of Collection |
|
Less than 16 days |
$293,000 |
.97 |
|
Between 16 and 30 days |
102,000 |
.89 |
|
Between 31 and 45 days |
70,000 |
.83 |
|
Between 46 and 60 days |
55,000 |
.76 |
|
Between 61 and 75 days |
28,000 |
.60 |
|
Over 75 days |
8,000 |
.30 |
- What is the appropriate balance for the allowance for doubtful accounts at year end?
- Show how accounts receivable would be presented on the balance sheet.
- What is the dollar effect of the year-end bad debt adjustment on the before-tax income?
Your well-written paper must be two to three pages in length, in addition to the title and reference pages, and be formatted according to the CSU-Global Guide to Writing and APA Requirements. Cite at least three peer-reviewed sources, in addition to the required readings for this module.
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