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19 April, 12:59

The following information relates to a company's accounts receivable:

accounts receivable balance at the beginning of the year, $300,000; allowance for uncollectible accounts at the beginning of the year, $25,000 (credit balance); credit sales during the year, $1,500,000; accounts receivable written off during the year, $16,000; cash collections from customers, $1,450,000. Assuming the company estimates bad debts at an amount equal to 2% of credit sales.

1. Calculate the year-end balance in the allowance for uncollectible accounts.

2. Calculate bad debt expense for the year.

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Answers (2)
  1. 19 April, 13:07
    0
    1. Calculate the year-end balance in the allowance for uncollectible accounts.

    allowance for uncollectible accounts balance = $25,000 (beginning balance) - $16,000 (write offs) + $30,000 (credit sales $1,500,000 x 2%) = $39,000

    2. Calculate bad debt expense for the year.

    bad debt expense = credit sales x 2% = $1,500,000 x 2% = $30,000

    Explanation:

    to record write offs:

    Dr Allowance for uncollectible accounts 16,000

    Cr Accounts receivable 16,000

    to record bad debt expense:

    Dr Bad debt expense 30,000

    Cr Allowance for uncollectible accounts 30,000
  2. 19 April, 15:57
    0
    1. the year-end balance in allowance for uncollectible accounts is $6,680.

    2. The bad debt for the year is - $2,320.

    Explanation:

    1. To calculate the year-end balance in allowance for uncollectible accounts:

    First we calculate the Account Receivable which is calculated as thus:

    ==> Account Receivable (ending balance) = accounts receivable (beginning balance) + Credit sales - cash collected - written off accounts receivable.

    ==> 300,000 + 1,500,000 - 1,450,000 - 16,000 = $334,000

    Therefore the account receivable = $334,000.

    Estimated percentage of bad debts = 2%

    allowance of uncollectible accounts = Account Receivable x Estimated percentage.

    ==> $334,000 x 2% = $6,680

    Hence, the year-end balance in allowance for uncollectible accounts is $6,680.

    2. To calculate the bad debt expense for the year, we use:

    allowance of uncollectible acountsl (ending balance) - [Allowance of uncollectible account (opening balance) - accounts receivables written off)

    ==> $6,680 - ($25,000 - $16,000)

    = 6,680 - 9,000

    = - $2,320

    The bad debt for the year is - $2,320. This is incurred when customers pay for an invoice when it has been written off.
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