After the accounts are adjusted and closed at the end of the fiscal year, Accounts Receivable has a balance of $673,400, and Allowance for Doubtful Accounts has a balance of $11,900. Describe how the accounts receivable and the allowance for doubtful accounts are reported on the balance sheet.
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On the balance sheet, both Accounts Receivable and Allowance for Doubtful Accounts are reported as separate line items. Here's how each of these accounts is reported:
1. Accounts Receivable:
Accounts Receivable represents the amount of money owed to a company by its customers for products sold or services rendered. It is listed as a current asset on the balance sheet, as it is expected to be collected within one year. The balance of $673,400 represents the total outstanding amount due from customers at the end of the fiscal year.
2. Allowance for Doubtful Accounts:
Allowance for Doubtful Accounts, also known as the provision for bad debts, is a contra-asset account. It is used to estimate and record the portion of Accounts Receivable that is expected to be uncollectible. By creating this allowance, companies can match the expected loss from bad debts to the same period's revenue. The balance of $11,900 represents the amount set aside for potential uncollectible accounts.
To report these accounts on the balance sheet, the following presentation is followed:
Assets:
Current Assets:
- Accounts Receivable: $673,400
Less: Allowance for Doubtful Accounts: ($11,900)
Net Accounts Receivable: $661,500
The net amount ($661,500) is derived by deducting the Allowance for Doubtful Accounts from the Accounts Receivable. This net amount represents the estimated collectible amount of Accounts Receivable.