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Percent of accounts receivable method
Warner Company's year end unadjusted trial balance shows accounts recievable of $99,000 . Allowance for doubtful accounts of $600 (credit). And sales of $280,000. Uncollectables are estimated to be 1.5% of account receivable.
1 Prepare the December 31 year-end adjusting entries for uncollectables. 2. What amount would have been used in the year-end adjusting entries if the allowance account had a year-end unadjusted debit balance of $300.:confused: Please help me |
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AR = 99,000 Uncollectable = 1.5% of AR Total est uncollectable = 99,000 * 1.5% = 1,485. You need to make the allowance account = this amount. 1. Cr Allowance by $855 (1485-600) Db Bad Debt Expense by 855 2. Cr Allowance by $1185 (1485-300) Db Bad Debt Expense 1185 Does this make sense now? |
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moonkhan,
Sorry I read #2 wrong, I thought it said the Allowance account had a Credit balance of $300. Because it is a debt balance and you need the allowance account to equal a 1485 credit balance you need to credit AR Allowance by 1485+300 = 1785 and offset to Bad debt expense. In my defense this is a trick question because the Allowance Account would never have a debt balance in the first place it is a contra-asset account. For example AR (Debt bal) net of allowance (credit bal) = net AR. This is a typical textbook problem which is not logical only trying to test your knowledge. Guess I have been in the real accounting world too long for these tricky textbook questions. In the real world allowance accounts should never have a debt balance. |
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Wecker Company's year-end unadjusted trial balance shows accounts receivable of $89,000, allowance for doubtful accounts of $500 (credit), and sales of $270,000. Uncollectible are setimated to be 1.5% of accounts receivable. What amount would have been used in the year-end adjusting entry if the allowance account had a year-end unadjusted debit balance of 200?
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