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ow.com/lrn/takeAssignment/takeAssignmentMain.do?invoker-assignments&takeAssignmentSession; ocator-assignment-take&uinprogress; Calculator Uncollectible Accounts-Percentage of Sales and Percentage of Receivables At the end of the current year, the accounts receivable account of Parker's Nursery Supplies has a debit balance of $344,125. Credit sales are $2,582,000. Record the end-of-period adjusting entry on December 31, in general journal form, for the estimated uncollectible accounts. Assume the following independent conditions existed prior to the adjustment: 1. Allowance for Doubtful Accounts has a credit balance of $2,000 a. The percentage of sales method is used and bad debt expense is estimated to be 1% of credit sales. If an amount box does not require an entry, leave it blank Page: 1 DOC. POST. NO. REF. DEBIT CREDIT DATE ACCOUNT TITLE 1 20-- Dec. 31 b. Th e percentage of receivables method is used and an analysis of the accounts produces an estimate of $24,430 in uncollectible accounts. If an amount box does not require an entry, leave it blank.Explanation / Answer
Ans. 1 (a) Debit Credit
WN 1 Bad Debts Expense a/c 25820
Allownace for doubtful accounts 25820
( To provide for estimated bad debts @ of 1 % of 2582000 )
( b )
Bad Debts Expense a/c 22430
Allownace for doubtful accounts 22430
( To provide for estimated bad debts of 24430 of which $2000 is already provided for )
Ans. 2
( a ) Debit Credit
Bad Debts Expense a/c 19365
Allownace for doubtful accounts 19365
( To provide for estimated bad debts @ 3/4 of 1 % of 2582000 )
( b )
Bad Debts Expense a/c 23750
Allownace for doubtful accounts 23750
( To provide for estimated bad debts of $ 22630 but as allowance account already has a debit balance of $1120, therefore account to be credited is 22630+1120 )
WN- 1
Allownace for doubtful accounts is a balance sheet account that reduces the reported amount of accounts recievable.
In Percentage-of-sales approach (income statement approach) bad debt expense is calculated as % of credit sales during the current accounting period and therefore does not use the balance in the allowance for doubtful accounts for calculating bad debt expense.
Where as Percentage of recievables approach is a balance sheet approach and takes into consideration the balance in allowance for doubtful accounts.
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