Suppose that the estimate of uncollectible accounts is based on the aging of accounts receivable and...
Suppose that the estimate of uncollectible accounts is based on
the aging of accounts receivable and that the Allowance for
Uncollectible Accounts has a credit balance before the adjustment
is made. Explain how this situation is handled.
Homework Answers
Answer
--When the allowance method is used in the estimate of uncollectible accounts is based on the aging of accounts receivable, following its steps are to be considered.
Step #1: calculate the amount of uncollectible accounts receivable by making the aging schedule and assigning the accounts receivable various due days.
Step #2 total all the uncollectible accounts based on the aging schedule. This total should be the adjusted balance of the allowance account.
Step #3. now, if the unadjusted allowance account balance is credit find the difference between the this credit balance and the balance determined in step 2.
-The difference between the amount determined in Step #2 and the unadjusted balance in the allowance ccount will be recorded as the bad debts expense or uncollectible account expense.
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debit to Allowance for Doubtful Accounts for $3,400.
debit to Bad Debts Expense for $4,200.
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