The following information relates to a company’s accounts receivable: accounts r

Question

The following information relates to a company’s accounts receivable: accounts receivable balance at the beginning of the year, $360,000; allowance for uncollectible accounts at the beginning of the year, $25,000 (credit balance); credit sales during the year, $1,250,000; accounts receivable written off during the year, $16,000; cash collections from customers, $1,150,000. Assuming the company estimates bad debts at an amount equal to 3% of credit sales.

1. Calculate bad debt expense for the year.

2. Calculate the year-end balance in the allowance for uncollectible accounts.

Explanation / Answer

   = 460000 - 90000 = $ 451000

                Bad Debt Expense = 3%* Current Account Receivable

                = 3% * 460000= 13800

Year End Balance in the Allowance for Uncollectible Accounts = 9000 + 13800

                                                                                           = 22800

Accounts Receivable Balance 360000 Credit Sales 1250000 Total 1610000 Less: Cash collection from the customer 1150000 Current Account Receivable 460000 Allowance for Uncollectible Accounts 25000 Less: AR Written off During the year 16000 Current Allowance for Uncollectible Accounts 9000 Net Account Receivable = Current Account Receivable - Current Allowance for Uncollectible Accounts 451000

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