IN 2008, Variman, Incorportated had Gross Accounts receivable of $2,366,420 and management estimated the Allowance for Doubtful accounts to be $243,520. Compute the ratio of Allowance of Doubtful accounts to Net Accounts receivable for Variman, Inc. for 2008 (that is, compute Allowance/ Net Accounts receivable.)
To compute the ratio of Allowance for Doubtful accounts to Net Accounts receivable, you first need to calculate the Net Accounts receivable.
Net Accounts receivable can be calculated by subtracting the Allowance for Doubtful accounts from the Gross Accounts receivable.
Given:
Gross Accounts receivable = $2,366,420
Allowance for Doubtful accounts = $243,520
Net Accounts receivable = Gross Accounts receivable - Allowance for Doubtful accounts
Net Accounts receivable = $2,366,420 - $243,520
Net Accounts receivable = $2,122,900
Now that we have the Net Accounts receivable, we can compute the ratio of Allowance for Doubtful accounts to Net Accounts receivable:
Allowance/Net Accounts receivable = Allowance for Doubtful accounts / Net Accounts receivable
Allowance/Net Accounts receivable = $243,520 / $2,122,900
Allowance/Net Accounts receivable ≈ 0.1146
Therefore, the ratio of Allowance for Doubtful accounts to Net Accounts receivable for Variman, Inc. for 2008 is approximately 0.1146 or 11.46%.