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Sanchez Shoes is a new online business which was opened by Andreina Sanchez on January 1, 2021. During her second year of business (2022), she
Sanchez Shoes is a new online business which was opened by Andreina Sanchez on January 1, 2021. During her second year of business (2022), she had total credit sales (there are no cash sales or sales returns) for the fiscal year ended December 31, 2022 of $875,000. Andreina realizes that some of her customers will not pay. However, she is not sure how to calculate bad debts expense. She has come to you to ask for advice on how to deal with this issue. You have reviewed her accounting records and come up with the following information: 1. Accounts Receivable balance on December 31, 2021 is $50,000 Dr. 2. Allowance for Doubtful Accounts balance on December 31, 2021 is $2,000 Cr. 3. Collections on Accounts Receivable during 2022 is $870,000 4. Write-Offs of Accounts Receivable during 2022 is $3,500 5. Recovery of Write-Offs of Accounts Receivable during 2022 is $400 6. You recommend that the Balance Sheet approach of estimating bad debts should be used at the year ended December 31, 2022. You estimate that 5% of the outstanding Accounts Receivable would be uncollectible. Instructions: a) Prepare all the necessary journal entries to record the above information for 2022. (9 Marks) b) Andreina has heard that an alternative method to account for uncollectible Accounts Receivable is called the Direct Write-Off method. Identify two (2) main differences between the Allowance method and the Direct Write-Off method of accounting for uncollectible Accounts Receivable. (4 Marks)
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