A Company Had the Following Items and Amounts in Its

question 109

Essay

A company had the following items and amounts in its unadjusted trial balance as of December 31 of the current year:
$\begin{array} { l l c } & \text { Debit } & \text { Credit } \\ \text { Cash sales } & & \$ 188,000 \\\text { Credit sales } & & 275,000 \\\text { Accounts receivable } & \$ 76,000 & \\\text { Allowance for doubtful accounts } & & 1,000\end{array}$ Prepare the adjusting entry to estimate bad debts assuming bad debts are estimated to be 2.5% of credit sales.

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Definitions:

Operating Activities

Activities that relate directly to the primary business operations of an organization, such as sales, provision of services, manufacturing of goods, etc.

Depreciation Expense

The allocation of an asset's cost over its useful life, representing the wear and tear, deterioration, or obsolescence of the asset.

Cash Flows

The total amount of money being transferred into and out of a business, particularly in terms of liquidity and financial planning.

Noncash Asset

Assets that cannot be easily converted into cash, such as buildings, equipment, and inventory.