Question

SECTION C-LONG QUESTION (10 points) A year-end review of Company ABC's Accounts Receivable and estimated uncollectible percentages revealed the following: Days due Estimated %uncollectibles Accounts receivables 1-30 days 1.5 % 30-90 days $10,000 90 days-1 year $6,000 22% Over 1 year The beginning debit balance for Accounts Receivables was $58,000. The beginning credit balance in Allowance for Uncollectible Accounts was $5,520. During the year, the Company ABC has generated $15,000 sales on account and written off a $600 uncollectible account. Company ABC uses the allowance method. Requirements: (Hint: do the T-account analyses for Accounts Receivable and Allowance Uncollectible Accounts) J) What's the the ending balance for Allowance for uncollectible accounts? And how much is he Net Accounts Receivable reported on the balance sheet by the year end? (3 marks)

Answer 1

Calculation of allowance for uncollectible accounts:

Days due	Accounts receivables ($)	Estimated % uncollectibles	Allowance to be created ($)
1-30 days	40000	1.50%	600
30 -90 days	10000	8%	800
90 days - 1 year	6000	22%	1320
Over 1 year	8000	50%	4000
Total	64000		6720

Ledgers of Accounts receivable and allowance:

Accounts receivable
Opening	58000	Bad debts	600
Sales	15000	Cash collected (Balancing figure)	8400
		Closing	64000
	73000		73000

Allowance for uncollectible accounts
		Opening	5520
		During the year (balancing figure)	1200
Closing	6720
	6720		6720

1. The ending balance of accounts receivable is the total of all the receivables outstanding for all the years. It sums to $ 64000.

Net accounts receivable is presented as follows in the Balance sheet:

Accounts receivable	Amount ($)	Amount ($)
Accounts receivable	64000
Less: Allowance for uncollectible accounts	6720
Net accounts receivable		57280

2. If we see the ledger of accounts receivable above, cash collected is the balancing figure. It is calculated by adding sales to opening balance, and subtracting write-offs and closing balance. It amounts to $ 8400.

The entry is as follows:

Particulars Debit Credit

Cash 8400

Accounts receivable 8400

(To record collections from receivables)

3. The journal entry for writing off would be:

Particulars Debit Credit

Bad debts    600

Accounts receivable 600

(To record write-off of uncollectible accounts)

4. The entry for bad debts expense would be:

Particulars Debit Credit

Bad debts    1200

Allowance for uncollectible accounts    1200

(To record bad debts expense for the year)