Jones Company uses the aging approach to estimate bad debt expense. The balance

Question

Jones Company uses the aging approach to estimate bad debt expense. The balance of each account receivable is aged on the basis of three time periods as follows (1) not due yet, $50,000 (2) up to 180 days past due, $14,000 and (3) more than 180 days past due, $4,000. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year end due to uncollectability is (1) 3%, (2) 12%, (3) 30%, respectively. At December 31, 2011 (end of the current year), the allowance for doubtful accounts balance is $200 (credit) before the end of period adjusting entry is made

Show how the various accounts related to accounts receivable should be shown on the December 31, 2011, balance sheet

Explanation / Answer

This should be shown as follows...

Under Balance Sheet - >under current Assets - > Sundry Debtors

(1) Not yet Due $50,000
Less:Provision for Bad & doubtful debt $ 1,500
-------------
$48,500

(2) Upto 180 days $14,000
Less:Provision for Bad & doubtful debt $ 1,680
-------------
$12,320

(3)More than 180 days $ 4,000
Less:Provision for Bad & doubtful debt $ 1,200
-------------
$ 1,800

Total of Provision is to be shown in debit of profit and loss account as provision for bad and doubtful debt ($4380-$200)=$4,180.

or alternatively you can take $200 as income and create provision for $4,380.Gross

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