Question

The following information relates to a company's accounts receivable: gross accounts receivable balance at the beginning of the year, $420,000; allowance for uncollectible accounts at the beginning of the year, $31,000 (credit balance); credit sales during the year, $1,550,000; accounts receivable written off during the year, $22,000; cash collections from customers, $1,600,000. Assuming the company estimates bad debts at an amount equal to 2% of credit sales.

 1. Calculate bad debt expense for the year.

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

Answer 1

• Requirement 1: Bad Debt Expense = $ 1550000 Credit sales x 2%
  = $ 31,000
• Requirement 2: Year end balance in Allowance account
  = $ 31000 beg balance – 22000 written off + 31000 bad debt expense
  = $ 40,000