Estimating doubtful accountsPerformance Bike Co. is a wholesaler of motorcycle supplies. An aging of the company’s accounts receivable on December 31 and a historical analysis of the percentage of uncollectible accounts in each age category are as follows: Age interval Balance Percent Uncollectible Not past due $3,250,000 0.8% 1-30 days past due 1,050,000 2.4 31-60 days past due 780,000 7.0 61-90 days past due 320,000 18.0 91-180 days past due 240,000 34.0 Over 180 days past due 150,000 85.0 $5,790,000 Estimate the proper balance of the allowance for doubtful accounts as of December 31.
Bad Debts
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.
Estimating doubtful accounts
Performance Bike Co. is a wholesaler of motorcycle supplies. An aging of the company’s accounts receivable on December 31 and a historical analysis of the percentage of uncollectible accounts in each age category are as follows:
| Age interval | Balance | Percent Uncollectible |
| Not past due | $3,250,000 | 0.8% |
| 1-30 days past due | 1,050,000 | 2.4 |
| 31-60 days past due | 780,000 | 7.0 |
| 61-90 days past due | 320,000 | 18.0 |
| 91-180 days past due | 240,000 | 34.0 |
| Over 180 days past due | 150,000 | 85.0 |
| $5,790,000 |
Estimate the proper balance of the allowance for doubtful accounts as of December 31.
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