The balance of accounts receivable is $275,000. The allowance for uncollectible

Question

The balance of accounts receivable is $275,000. The allowance for uncollectible accounts has a credit of $240. Net credit sales for the year were $771,000 and cash sales were $68,000. Information for estimating uncollectible accounts expense is presented below. For each independent situation, prepare the adjusting entry to record the estimate and determine the resultant balance in the allowance for uncollectible accounts.

a. The company uses the percent-of-sales method. Historical data indicates that approximately 3% of net credit sales are uncollectible.

Days Outstanding: Amount: % Uncollectible:
Not yet due $150,000 1%
31-50 days past due $50,000 5%
61-90 days past due $40,000 10%
91-120 days past due $25,000 25%
over 120 days past due $10,000 50%

Explanation / Answer

3% of Net credit Sales = 3%*$275,000 = $8250 So using percent-of-sales method, the Allow for Bad debts should have a balance of $8250. However Allow for Bad debts already has a Credit bal of $250, So Addl prov reqd is 8250-250 = 8000. Entry for same is:- mmddyy Bad debts expense Dr $8,000 Allowance for bad debts Cr $8,000 ( To provide for Allow for Bad debts using %of Net credit Sales)

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