Question

The following information relates to a company’s accounts receivable: accounts receivable balance at the beginning of the year, $300,000; allowance for uncollectible accounts at the beginning of the year, $25,000 (credit balance); credit sales during the year, $1,500,000; accounts receivable written off during the year, $16,000; cash collections from customers, $1,450,000. Assuming the company estimates that future bad debts will equal 10% 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.

Answer 1

Answer:

1. $33,400

2. $24,400

Explanation:

For computing the year-end balance in the allowance for uncollectible accounts first ,we have to compute the ending balance of accounts receivable which is shown below:

Ending balance of accounts receivable = Beginning balance + credit sales - customers’ accounts collected - write off amount

= $300,000 + $1,500,000 - $1,450,000 - $16,000

= $334,000

Now the year-end balance in the allowance for uncollectible accounts would be

= $334,000 × 10%

= $33,400

2. The computation of the bad debt expense is shown below:

= Year end balance of allowance for uncollectible accounts - beginning balance of allowance for uncollectible accounts + written off

= $33,400 - $25,000 + $16,000

= $24,400