Uncollectible accounts, Accounting Basics

The Olympic Company has an accounts receivable balance at December 31, 2010 of $159,548.00.  The existing balance in the Allowance for Uncollectible Accounts was a credit of $2,563.94.  The company had net sales during 2010 of $789,933.00.

Prepare the adjusting entry at December 31, 2010 to record the estimated uncollectible accounts under each of the following assumptions:                

a)  The company uses the percentage of receivables method and estimates that 3% of their accounts receivables will not be collectible.   

b)  The company uses the percentage of sales method and estimates that 1% of their net sales will be uncollectible.               

Answer:                                              

                Accounts receivable on 31.12.10               159,548.00         

                Allowance for uncollectible accounts      2,563.94             

                Net sales during 2010     789,933.00         

a)            Estimated uncollectible accounts              =3% * 159548   

                                 4,786.44             

                Existing Allowance for uncollectible accounts      2,563.94             

                Therefore provision to be created           2,222.50             

 

                Bad debt expense A/c..........Dr   2,222.50             

                     To Allowance for uncollectible accounts                           2,222.50

                (To record estimate of uncollectible accounts)                  

 

b)            Estimated uncollectible accounts              =1% * 789933   

                                 7,899.33             

                Existing Allowance for uncollectible accounts      2,222.50             

                Therefore provision to be created           5,676.83             

                Bad debt expense A/c..........Dr   5,676.83             

                     To Allowance for uncollectible accounts                           5,676.83

                (To record estimate of uncollectible accounts)                

 

Posted Date: 7/12/2012 3:12:10 AM | Location : United States







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