The following information pertains to CJ’s Cabinet Company’s sales on account an
ID: 2444834 • Letter: T
Question
The following information pertains to CJ’s Cabinet Company’s sales on account and accounts receivable:
Collections of Accounts Receivable, 2014
Using the allowance method, the amount of uncollectible accounts expense for 2014
Net realizable value of receivables at the end of 2014
Why the uncollectible accounts expense amount is different from the amount that was written off as uncollectible.
861,003
Accounts Receivable Balance, January 1, 2014 $ 124,100 Allowance for Doubtful Accounts, January 1, 2014 3,480 Sales on Account, 2014 832,570 Cost of Goods Sold, 2014 591,125Collections of Accounts Receivable, 2014
(1)Using the allowance method, the amount of uncollectible accounts expense for 2014
(2)Net realizable value of receivables at the end of 2014
b.Why the uncollectible accounts expense amount is different from the amount that was written off as uncollectible.
A. Uncollectible accounts expense is an estimate of current receivables that may eventually be uncollectible. B. Uncollectible accounts expense is the actual amount that was determined in the current accounting period to be uncollectible.861,003
Explanation / Answer
The uncollectible account expense for 2014 will be calculated on proportionate basis of 2013
The balance receivable in 2014 = Opening balance of receivable + Sales 2014 - Collection of receivable in 2014
=124100 +832570 - 861003
= 95667
So, Doubtful provision 2014 = Provision for Debt for 2013 * Receivable of 2014
Accounts Receivable of 2013
=3480 * 95667
124100
=2682
B) The uncollectible account is an estimate of the current receivable that may be collectible / uncollectible in future. The idea of creating a provision is to fairly estimate based on past data, what proportion of receivables remain uncollected. However this estimation may or may not happen necessarily.
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