Question

EF 212 - INTRODUCTION TO ACCOUNTING/HANDOUT 9 Q1. On December 31 of last year, the balance sheet of Vaslor Company had Accounts Receivable of $298,000 and a credit balance in Allowance for Uncollectible Accounts of S20,300. During the current year, the company's records included the following selected activities: (a) sales on account, $1,195,000; (b) sales returns and allowances, $73,000: (c) collections from customers, $1,150,000; (d) accounts written off as worthless, $16,000, In the past, the company had found that 1.6 percent of net sales would not be collected 1. Prepare T accounts for Accounts Receivable and Allowance for Uncollectible Accounts. Enter the beginning balances, and show the effects on these accounts of the items listed above, summarizing the year's activity. Determine the ending balance of each account. Compute Uncollectible Accounts Expense and determine the ending balance of Allowance for Uncollec tible Accounts under (a) the percentage of net sales method and (b) the accounts receivable aging method, assuming an aging of the accounts receivable shows that $20,000 may be uncollectible. 4. How do you explain the fact that the two methods in 2 result in different amounts for Uncollectible Accounts Expense? What rationale underlies each method? unhlo naing method to estimate uncollectible

Answer 1

Ans 1)   

	Account receivable A/c
Particulars	Debit ($)		Particulars	Credit ($)
Opening Balance	298,000		By Sales Return	73,000
To sales	1,195,000		By Allowance for Account Receivable	16,000
			By Bank	1,150,000
			Closing Balance	254,000
Total	1,493,000		Total	1,493,000

Allowance for Uncollectible Account
Particulars	Debit ($)	Date	Particulars	Credit ($)
To Account Receivable	16,000	1.Jan	Opening Balance	20,300
Closing Balance	22,252		By Profit &loss A/c ((1,195,000-73,000)*1.6%)	17,952
Total	38,252		Total	38,252

2) a) under percentage of Net sales method

Computation of Uncollectible Account Expense
Particulars	Amount ($)
Sales	1,195,000
less: Sales Return	73,000
Net Sales	1,122,000
Uncollectible Account Expense ( 1,122,000*1.6%)	17,952

Balance for Allowance for uncollectible Accounts A/c is $ 22,252

b) Under Ageing Method

Uncollectible Account Expense is $ 20,000

Allowance for Account Receivable
Particulars	Amount ($)
Opening Balance	20,300
By Profit &loss A/c	20,000
Less : Bad debts	16,000
Balance for Allowance for Uncollectible Account	24,300

4) Under the percentage of net sales method the allowance for uncollectible Account expenses  is calculated as % of net sales whereas in case of aging method the uncollectible account expenses. In percentage of net sales method underlines that the uncollectible account expenses is predictable as a % of net sales by understanding the trend of previous years whereas as aging method underlines the management decision about what amount is uncollectible as per the aging of the Account receivable.