Question

The following information pertains to Lightning Inc., at the end of the year: Credit Sales $ 70,000 Accounts Payable 12,200 Accounts Receivable 9,000 Allowance for Uncollectible Accounts $ 1,400 credit Cash Sales 39,000 Lightning uses the percentage-of-credit-sales method and estimates 8% of sales are uncollectible. What is the ending balance of the allowance account after the year-end adjustment?

Answer 1

Answer: $7000

Explanation: The year ending allowance account can be computed using following formula :-

Ending balance in in allowance for uncollectible accounts = balance in allowance for uncollectible account + bad debts during the period

.

therefore, putting the values in equation we get :-

ending balance = $1400 + $70,000 * 8%

                           =  $7000