supplies wigs and hair care products to beauty salons throughout Texas and the Southwest. The accounts receivable clerk for Averys All-Natural prepared the following aging-of-receivables schedule as of the end of business on December 31, 20Y7:
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Allowance Method for Doubtful Accounts
Averys All-Natural Company supplies wigs and hair care products to beauty salons throughout Texas and the Southwest. The accounts receivable clerk for Averys All-Natural prepared the following aging-of-receivables schedule as of the end of business on December 31, 20Y7:
| Days Past Due | |||||||||
| Customer | Balance | Not Past Due |
1–30 | 31–60 | 61–90 | 91–120 | Over 120 | ||
| AAA Beauty | 27,500 | 27,500 | |||||||
| Amelia's Wigs | 3,750 | 3,750 | |||||||
| Zim’s Beauty | 1,650 | 1,650 | |||||||
| Totals | 1,100,000 | 750,000 | 180,000 | 75,000 | 45,000 | 22,000 | 28,000 |
Averys All-Natural Company has a past history of uncollectible accounts by age category, as follows:
| Age Class | Percent Uncollectible |
||
| Not past due | 1 | % | |
| 1–30 days past due | 3 | ||
| 31–60 days past due | 7 | ||
| 61–90 days past due | 16 | ||
| 91–120 days past due | 40 | ||
| Over 120 days past due | 90 |
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