Terms and Definitions The alowance method requires an estimate of uncollectible

Question

Terms and Definitions The alowance method requires an estimate of uncollectible accounts at the end of the period. This enalysis of recevables method, It is operating under the assumption that the longer an account recevable s outstanding, the lesslikey it is that the receivable will be collected estimate is normally based on past experience, industry averages, or frecasts of the future, r·copany ases the Understanding the Business Transaction The analysis of recevables method determines the amount ef ad Debt Expense ht is reported on the income statement by multipying e by the estimate percentage of botal Y that wll become uncolectible. Nash Company had the folowing data on December 31, 20xi, before any adjusments Accounts Receivabie, December 31 Not past due 113,800 $46,200 $22,700 $10,342 4,280 197,320 31 to 60 days past due 1 to 90 days past due more than 90 days pest due Total Accounts Receivable, December 31 Percentages of Accounts Receivabe Estmated to be unoollectble Not pait oue 1 bo 30 deys past due 3 t0 60 days past due 5% 10%

Explanation / Answer

The Analysis of receivables method determines the amount of bad debt expense that is reported on the income statement. by multiplying the Ageing group of Accounts receivable by multiplying with estimated % that all become uncollectible. Bad debts expense Age-group Accounts receivable o/s Estimated % of uncollectible Reqired Allowance NO past due 113800 2% 2276 1-30 days 46200 5% 2310 31-60 22700 10% 2270 61-90 10340 20% 2068 More than 90 4280 30% 1284 197320 10208 Allowance for doubtful acccounts on Dec 31 : 2890 Bad debts expense (10208-2890) 7318 Allowance balance on Dec 31 10208 Bad debts expense Dr. 7318      Allowance for doubtful accounts 7318 T-Accounts Accounts receivable Balancec 197320 Balance 197320 Allowance for Doubtful Accounts Balance 2890 Bad debts expense 7318 Balance 10208 Bad debts expense for the year:   $ 7318 Accountst receivable at the end: Accounts recievable (Gross) 197320 Less: Allowance for doubtful accounts 10208 Accounts receivable (Net) 187112

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