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Horngren'S Financial And Managerial Accounting
Found in: Page 465

Short Answer

What are some benefits to a business in accepting credit cards and debit cards?

A significant advantage of accepting credit and debit cards are attracting more customers.

See the step by step solution

Step by Step Solution

Step 1: Meaning of Credit Card

A straightforward but unusual credit card enables the owner to make transactions without using cash. Instead, when a credit card is used, the owner borrows money from the bank that issued the card, which is frequently the case.

Step 2: Some benefits to a business in accepting credit cards and debit cards

Accepting credit cards and debit cards has advantages for businesses, including the ability to draw in more clients, the elimination of the need to check each client's credit history, the elimination of the need to keep accounts receivable records, and the elimination of the need to pursue collections from clients.

Most popular questions for Business-studies Textbooks

Accounting for uncollectible accounts using the allowance method

This problem continues the Canyon Canoe Company situation from Chapter 7.

Canyon Canoe Company has experienced rapid growth in its first few months of operations and has had a significant increase in customers renting canoes and purchasing T-shirts. Many of these customers are asking for credit terms. Amber and Zack Wilson, stockholders and company managers, have decided it is time to review their business transactions and update some of their business practices. Their first step is to make decisions about handling accounts receivable.

So far, year-to-date credit sales have been $15,500. A review of outstanding

receivables resulted in the following aging schedule:

Age of Accounts as of June 30, 2019

Customer name

1-30 days

31-60 days

61-90 days

Over 90 days

Total balance

Canyon

$250

$250

Crazy trees

$200

$150

$350

Early start Daycare

$500

Lakefront Pavilion

$575

$500

$575

Outdoor Center

$300

$300

Rivers Canoe Club

$350

$350

Sport Shirts

$450

$120

$570

Zack’s Marina

$75

$75

$225

Totals

$1,900

$345

$375

$500

$3,120

Requirements

1. The company wants to use the allowance method to estimate bad debts. Determine the estimated bad debts expense under the following methods at June 30, 2019. Assume a zero-beginning balance for Allowance for Bad Debts. Round to the nearest dollar.

a. Percent-of-sales method, assuming 4.5% of credit sales will not be collected.

b. Percent-of-receivables method, assuming 22.5% of receivables will not be

collected.

c. Aging-of-receivables method, assuming 5% of invoices 1–30 days will not be

collected, 20% of invoices 31–60 days, 40% of invoices 61–90 days, and 75% of

invoices over 90 days.

2. Journalize the entry at June 30, 2019, to adjust for bad debts expense using the percent-of-sales method.

3. Journalize the entry at June 30, 2019, to record the write-off of the Early Start Daycare invoice.

4. At June 30, 2019, open T-accounts for Accounts Receivable and Allowance for Bad Debts before Requirements 2 and 3. Post entries from Requirements 2 and 3 to those accounts. Assume a zero beginning balance for Allowance for Bad Debts.

5. Show how Canyon Canoe Company will report net accounts receivable on the balance sheet on June 30, 2019.

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