Question

In 2018, warehouse 13 had net credit sales of $750000. on january 1, 2018, allowance for doubtful accounts had a credit balance of $16000. during 2018, $29000 of uncollectible accounts receivable were written off. past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivable basis). if the accounts receivable balance at december 31 was $150000, what is the required adjustment to the allowance for doubtful accounts at december 31, 2018?

Answer 1

Since the company is using the percentage of receivable method in computing the allowance for doubtful account, the amount that will be computed will be the ending balance of the allowance for doubtful account and not the doubtful account expense itself. To compute for the allowance for doubtful account using this method, you need to multiply the ending balance of the accounts receivable with the given percentage. Therefore, the ending allowance for doubtful accounts would be $15,000 ($150,000 x 10%).

To compute the amount of adjustment to the allowance for doubtful accounts, we can come up with an equation:

Beginning balance ($16,000) + X (adjustment) – allowance written off ($29,000) = Ending balance ($15,000)

Computing the equation, you can get the amount of $28,000 which is the adjustment of allowance for doubtful accounts or simply said, this is the doubtful accounts expense for the year.