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Chapter 2
Accounting for Receivables
Required
a) To account for bad debt, Softbed estimates that 2% of its gross accounts receivable
balance will become uncollectible. Use the information provided in the table below to
calculate allowance for doubtful accounts balances for 2014 to 2016, and the days sales
outstanding and accounts receivable turnover for the years 2015 and 2016. Compare the
results of ratio calculations and comment on whether the company’s performance has
improved or weakened.
2016
2015
2014
Net Credit Sales
$4,500,000 $4,200,000 $4,000,000
Gross Accounts Receivable
490,000
400,000
770,000
Allowance for Doubtful Accounts
Days Sales Outstanding
Accounts Receivable Turnover
b) What are other methods that Softbed can use to estimate its bad debt? Which method do
you think would be most suitable for Softbed?
