ALLOWANCE METHOD - ACCOUNTS RECEIVABLE APPROACH SITUATION TWO - COMPANY B BALANCES RECORD THE FOLLOWING ENTRIES ASSETS = LIAB + EQUITY CASH 19,000 5,000 ALLOWANCE ACCOUNTS FOR RECEIVABLE DOUBTFUL ACCOUNTS (500) INVESTMENTS = BANK LOAN PAYABLE CAPITAL RETAINED EARNINGS REVENUE OTHER EXPENSES BAD DEST EXPENSE 2,000 = 1,000 + 10,000 4,500 14,000 (4,000) 0 These are the balances before dealing with "bad" customers. A Write off a customer with a balance of $400. B C1 A customer with an outstanding balance of $1,000. Pays you $400. You have to write off the rest. Customer from A ends up sending you cash for $100. STEP 1: Bring back the receivable. C2 STEP 2: Record the payment of the receivable. D The business analyzes the accounts receivable using an aging schedule and determines that $600 "may" not be collected at some point in the future. Record any needed adjustment. QUESTIONS: What is the net income for the period above? What is the net receivable (or realizable) value? What is the accounts receivable turnover ratio? (a/r turnover ratio = sales/accounts receivable) What is the days in accounts receivable number (365/AR turnover ratio from above) What is the net income percentage/ratio? What is the debt to asset ratio? What is ending retained earnings? 11 Which company do you prefer? Why?