Concept explainers
(1)
Aging of receivables method:
A method of determining the estimated uncollectible receivables, based on the age of individual
To prepare: A summary
(1)
Explanation of Solution
Date | Account Title and Explanation | Post Ref |
Debit ($) |
Credit ($) |
Allowance for uncollectible accounts | 35,000 | |||
Accounts Receivable | 35,000 | |||
(To record the write-off of receivables) |
Table (1)
The collection of account receivables previously written-off:
Date | Account Title and Explanation | Post Ref |
Debit ($) |
Credit ($) | |
Accounts Receivable | 3,000 | ||||
Allowance for uncollectible accounts | 3,000 | ||||
(To record the reinstate the debt previously written off as bad) | |||||
Cash | 3,000 | ||||
Accounts Receivable | 3,000 | ||||
(To record the receipt of cash from the debt previously written off as bad) |
Table (2)
(2)
To prepare: The year-end
(2)
Explanation of Solution
(a)
Bad Debts Expense – Percent of Credit Sales:
Date | Account Title and Explanation | Post Ref |
Debit ($) |
Credit ($) |
Bad Debts Expense | 52,500 | |||
Allowance for uncollectible accounts | 52,500 | |||
(To record bad debts expense) |
Table (3)
Working note:
Compute the amount of monthly bad debts expense:
(b)
Bad Debts Expense – Percent of Year Balance of Accounts Receivable:
Date | Account Title and Explanation | Post Ref |
Debit ($) |
Credit ($) |
Bad Debts Expense | 36,700 | |||
Allowance for uncollectible accounts | 36,700 | |||
(To record bad debts expense) |
Table (4)
- Compute the year-end balance of accounts receivable:
Accounts Receivable Accounts Analysis | |
Beginning balance including allowance
|
$462,000
|
Add: Credit Sales | 1,750,000 |
Less: Write-offs | (35,000) |
Less: Cash Collection | (1,830,000) |
Ending balance | $347,000 |
Table (5)
Working note:
Compute the amount of monthly bad debts expense:
Compute the bad debts expense:
Allowance for Uncollectible Accounts Analysis | |
Details | Amount ($) |
Beginning Balance | $30,000 |
Add: Collections of receivable previously written off as bad | 3,000 |
Less: Write-offs | (35,000) |
Balance before year-end Adjustments | (2,000) |
Less: Estimated Allowance | (34,700) |
Bad Debts Expense after Adjustments | $36,700 |
Table (6)
(c)
Entry Bad Debts Expense – Aging of Accounts Receivable
- Compute the estimated or targeted balance of Allowance for Uncollectible Accounts:
Estimated or targeted balance of Allowance for Uncollectible Accounts is determined by multiplying the estimated percentage of uncollectible with the estimated amount in each category.
R Company | |||||
Estimated Uncollected Accounts | |||||
31-Dec-16 | |||||
Details | Year End Accounts Receivable | Percentage of Uncollectible Accounts of Year End Accounts Receivable | Total Amount | Percentage Considered Uncollectible | Allowance for Doubtful Debts Accounts |
($) | ($) | ($) | (%) | ($) | |
[B × C] | |||||
A | B | C | D | E | F |
0-60 Days Past Due | $347,000 | 65% | 225,550 | 4% | 9,022 |
61-90 Days Past Due | 347,000 | 20% | 69,400 | 15% | 10,410 |
91-120 days Past Due | 347,000 | 10% | 34,700 | 25% | 8,675 |
Over 120 Days Past | 347,000 | 5% | 17,350 | 40% | 6,940 |
Total | 347,000 | 35,047 |
Table (7)
- Compute the bad debts expense:
Allowance for Uncollectible Accounts Analysis | |
Details | Amount ($) |
Beginning Balance | $30,000 |
Add: Collections of receivable previously written off as bad | 3,000 |
Less: Write-offs | (35,000) |
Balance before year-end Adjustments | (2,000) |
Less: Estimated Allowance | (35,047) |
Bad Debts Expense after Adjustments | $37,047 |
Table (8)
- Record the Entry:
Date | Account Title and Explanation | Post Ref |
Debit ($) |
Credit ($) |
Bad Debts Expense | 37,047 | |||
Allowance for uncollectible accounts | 37,047 | |||
(To record bad debts expense) |
Table (9)
(3)
The net amount of accounts receivable reported in the 2018 balance sheet.
(3)
Explanation of Solution
The net amount of accounts receivable reported in the 2018 balance sheet is determined as follows:
Amount ($) | Amount ($) | Amount ($) | |
Assets: | (a) | (b) | (c) |
Current assets: | |||
Accounts receivable | 347,000 | 347,000 | 347,000 |
Less: Allowance for bad debts (a) | (50,500) | (34,700) | (35,047) |
296,500 | 312,300 | 311,953 |
Table (10)
Working note:
Calculate year end allowance for situation (a)
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