allowance method to recognize uncollectible accounts expense
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At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
The Fortune Company uses allowance method to recognize uncollectible accounts expense. It provides you the following selected information:
● Accounts receivable on December 31, 2017: RO380000
● Required balance in Allowance for Doubtful Accounts account on December 31, 2017: RO3000
● Existing balance in Allowance for Doubtful Accounts account on December 31, 2017: RO2500
The
Dr Uncollectible Accounts Expense 500 & Cr Allowance for Doubtful Accounts 500
Dr Uncollectible Accounts Expense 3,000 & Cr Allowance for Doubtful Accounts 3,000
Dr. Accounts Receivable 2500 Cr Uncollectible Accounts Expense 2500
Dr. Accounts Receivable 2500 Cr Allowance for Uncollectible Accounts Expense 2500
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