Question

The Miller Company earned $190,000 of revenue on account during Year 1. There was no beginning balance in the accounts receivable and allowance accounts. During Year 1, Miller collected $136,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account. What is the amount of uncollectible accounts expense that will be recognized on the Year 1 income statement?

Answer 1

Answer:

The amount of uncollectible accounts expense that will be recognized on the Year 1 income statement is $1,620.

Explanation:

To arrive at the amount of uncollectible accounts expense that will be recognized on the Year 1 income statement, we simply need to calculate 3% of the company's sales on account balance, as follows:

3% of ($190,000 - $136,000) = $1,620

So, $1,620 would be the bad debt expense that will be recorded in Year 1 income statement, since there is no opening balance of sales on account and allowance for doubtful accounts.

Also, note that the collection on account during the year would reduce the sales on account balance, as shown above.