Please help me understand the concept. I\'m not getting it at all. I can reprodu
ID: 2333396 • Letter: P
Question
Please help me understand the concept. I'm not getting it at all. I can reproduce the answer, but I want to know specifically why we are making our calculations with each and every account.
The following information relates to a company's accounts receivable: accounts receivable balance at the beginning of the year, $310,000; allowance for uncollectible accounts at the beginning of the year, $20,000 (credit balance); credit sales during the year, $1,000,000; accounts receivable written off during the year, $11,000; cash collections from customers, $900,000. Assuming the company estimates that future bad debts will equal 11% of the year-end balance in accounts receivable. 1. Calculate the year-end balance in the allowance for uncollectible accounts. 2. Calculate bad debt expense for the year.Explanation / Answer
1) Calculate year end allowance for doubtful accounts :
Allowance for doubtful account balance = 399000*11% = $43890
2) Bad debt expense
Explanation:
We have beginning balance of account receivable and credit sales increase that balance after that amount write off and cash collection decrease account receivable.. Then we find out ending balance of account receivable and allowance for doubtful accounts balance should be 11% of ending balance of account receivable.
Now beginning balance of allowance for doubtful account reduce by write off and now reduce required allowance so balance we should record as bad debt expense.
Got it.
Beginning balance of account receivable 310000 Credit Sales 1000000 Less: Write off -11000 Less: Cash collection -900000 Ending balance of account receivable 399000