The following information pertains to Leslie’s Floor sales on account and accoun
ID: 2357561 • Letter: T
Question
The following information pertains to Leslie’s Floor sales on account and account receivable.Accounts receivable balance, January 1, 2012 $52,500
Allowance for doubtful accounts, January 1, 2012 $4,725
Sales on account, 2012 $925,000
Cost of goods sold, 2012 $615,000
Collections of account receivable, 2012 $835,000
After several collection attempts, Leslie’s wrote off $3,100 of accounts that should not be collected. Leslies’ estimates that bad debts expense will be 0.5 percent of sales on account.
A. Compute the following amounts.
1. Using the allowance method, the amount of uncollectible accounts expense for 2012
2. Net realizable value of receivables at the end of 2012
B. Explain why the uncollectible accounts expense amount is different from the amount that was written off as uncollectible.
Explanation / Answer
A. 1. Since Leslie’s writes off 0.5% of sales as uncollected, and the amount of sales on account in 2012 is 925,000, the amount of uncollectible accounts expense for 2012 is 925,000*0.005 = 4625 2. AR balance at beginning of year 52,500 Plus sales on account 925,000 Minus collections of AR 835,000 Minus write-off 3,100 Equals 139,400 AR at the end of the year. Since they want “net realizable” you need to subtract the allowance for doubtful accounts. So you need to take the allowance of doubtful accounts at the beginning of the year 4,725 Add the uncollectible accounts expense for 2012 of 4625 Subtract the write off of 3,100 Equals 6250 , which is the allowance account at the end of the year. So net realize value of receivables is 139,400 – 6250 = 133,150. B. The difference is because the uncollectible accounts expense is based on a percentage of sales in this case, while the amount that was written off is equal to the amount of accounts receivable that are determined to be uncollectible and thus written off. This method matches the expense with the revenues that created them.
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