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Accounting Scenerio Question. Doubtful Accounts and Recievables.
I've been given an accounting scinerio that I'm not 100% sure on. If a company has an allowance account of $45,000 lower than the actual year end estimated doubtful accounts. The allowance again is $45,000 lower than the estimated amount of doubtful accounts. What is the best way to correct this error in the financial statements? Or how would you handle this? Also; there have been no payments on recievables done through the year and there was an increase of $60,000 from the prior year. How do you make the books match the same for recievables as the prior year? Make a large payment to make up the difference? Any help is apprieciated.
-Amy |
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I'm wondering if the question actually stated this is an error. It's normal to look at your allowance at the end of the year to see if it needs adjusting. If you determine it is $45,000 too low, you make an adjusting entry to debit Bad Debt Expense and Credit Allowance for Doubtful Accounts. The second part of your question: Also; there have been no payments on recievables done through the year and there was an increase of $60,000 from the prior year. How do you make the books match the same for recievables as the prior year? Make a large payment to make up the difference? This question is a little confusing. You would not make payments of Accounts Receivable as those are amounts you are expecting to receive. To say there was an increase of $60,000 and there have been no payments indicates that you sold $60,000 for the current year and didn't receive any payments. Why do you want the books to match the same for receivables for the prior year? Do you mean the same ratio of allowance for doubtful accounts to receivable as the previous year? |
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