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)