ACTIVITIES/ASSESSMENT:

Guide Questions:

1. Why is every cash payment not treated as an expense?

2. Why is every cash receipt not treated as an income?

3. When is the gross sales not proper to use as a basis for determining uncollectible

accounts?

4. In what methods of computing uncollectible accounts will the beginning allowancefor bad debts be considered to arrive at the current provision?

Exercises:

1. The following are the selected account balances of El Mar Company taken from its trial

balance as of December 31, 2006.

Accounts Receivable P125,000

Allowance for Bad Debts 6,500

Sales 1,125,000

Sales Returns & Allowances 16,000

Sales discount 25,500

Required:

Give the adjusting entry, the income statement presentation of bad debts and the balance sheet

presentation for accounts receivable at its realizable value under each of the following methods

of providing for bad debts:

1. Bad debts are estimated to be 1% of gross sales.

2. Bad debts are estimated to be % of net sales.

3. Increase the allowance by 2% of the accounts receivable.

4. The allowance for bad debts should be increased to 5% of accounts receivable.

5. The aging schedule showed that uncollectible accounts will amount of P7,500.