Percent of Sales Method At the end of the current year, Accounts Receivable has

Question

Percent of Sales Method At the end of the current year, Accounts Receivable has a balance of $400,000; Allowance for Doubtful Accounts has a debit balance of $3,500; and sales for the year total $1,800,000. Bad debt expense is estimated at l/4 of 1% of sales. 1. Determine the amount of the adjusting entry for uncollectible accounts 4,500 2. Determine the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense. Accounts Receivable Allowance for Doubtful Accounts Bad Debt Expense 00,000 8,000 | X 4,500 3. Determine the net realizable value of accounts receivable 392,000 | ? Feedback Check My Work a. Remember that since accounts receivable are created by credit sales, uncollectible accounts can be estimated as a percent of credit sales. If the portion of credit sales to sales is relatively constant, the percent may be applied to total sales. b. Under the percent of sales method, the amount of the adjustment is the amount estimated for Bad Debt Expense. c. Remember that net realizable value is the amount that is expected to be collected or realized. Learning Objective 4

Explanation / Answer

Allowance for bad debt = $1000 credit balance

At the end , allowance for bad debt has $3500 debit balance and further bad debt expenses a/c is debited and allowance for bad debt account is crediter by $4500. Leaving $1000 in the credit of allowance for bad debt account.

Net realisable value of account receivables = $399000

We have proper credit balance of $1000 on allowance for bad debt account.

Therefore net realisable value of A/R = A/R - allowance for BD

= $400000-$1000

= $399000

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