Question

The December 31st, Balance Sheet shows the following:
	Accounts Receivable				$        100,000
	less: Allowance for uncollectible accounts				(5,000)
		Net Accounts Receivable			$          95,000
	During the year, the following activity occurred in the accounts receivable account:
	Sales on credit		650000
	cash collections		635000
	write-offs		2500
1)	Before a year end adjustment, what is the balance in the allowance for uncollectible accounts?
2)	What is the balance in gross accounts receivable at year end?
3)	Using a rate of .5% of sales, what is the adjusting journal entry to the allowance?
4)	Based on an aging of the year end a/r, the allowance should be $8,000. What is the appropriate adjusting entry to the allowance?
5)	How are the year end Accounts Receivable reported (net of an allowance)?
	(a) Under the % of sales method - #3
	(b) Under the aging method - #4

Answer 1

1	Allowance for doubt ful accounts	5000	credit
Less	Accounts written off during the year	2500
	Allowance for uncollectible accounts before year end	2500	Credit
2	Accounts receivable gross	100000
Add	Sales on credit	650000
		750000
Less	Cash collection	635000
	Accounts written off during the year	2500
	Gross accounts receivable at year end	112500
3	.5 % of sales = .5% * 650000	3250
	Journal entry
	Bad debt expense	3250
	Allowance for uncollectible accounts		3250
4	Year end allowance	8000
	Allowance for uncollectible accounts before year end	2500
	Bad debt expense	5500
	Journal entry
	Bad debt expense	5500
	Allowance for uncollectible accounts		5500
5		Sales % method	Aging method
	Gross accounts receivable at year end	112500	112500
	Year end allowance	5750	8000
	Net accounts receivable	106750	104500
	Year end allowance	(2500+3250)	8000