Question

Swathmore Clothing Corporation grants its customers 30 days’ credit. The company uses the allowance method for its uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 2% times the amount of credit sales for the month. At the fiscal year-end of December 31, an aging of accounts receivable schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly.

At the end of 2017, accounts receivable were $588,000 and the allowance account had a credit balance of $52,000. Accounts receivable activity for 2018 was as follows:

Beginning balance	$	588,000
Credit sales		2,690,000
Collections		(2,553,000	)
Write-offs		(46,000	)
Ending balance	$	679,000

The company’s controller prepared the following aging summary of year-end accounts receivable:

		Summary
Age Group	Amount		Percent Uncollectible
0–60 days	$	405,000	3	%
61–90 days		96,000	10
91–120 days		56,000	26
Over 120 days		122,000	37
Total	$	679,000

Required:
1. Prepare a summary journal entry to record the monthly bad debt accrual and the write-offs during the year.
2. Prepare the necessary year-end adjusting entry for bad debt expense.
3-a. What is total bad debt expense for 2018?
3-b. How would accounts receivable appear in the 2018 balance sheet?
  

Answer 1

1)	Accounting titles & explanations				Debit	Credit
	Bad debts expense				53800
	allowance for uncollectible accounts					53,800
	(2,690,000*2%)
	Allowance for uncollectible accounts				46,000
	Account receivable					46,000
					Estimated
2)	Age group		amount	%	bad debts
	0--60		405,000	3%	12150
	61--90 days		96,000	10%	9600
	91---120 days		56,000	26%	14560
	over 120 days		122,000	37%	45140
	total		679,000		81450
	Bad debts expense				21,650
	allowance for uncollectible accounts					21,650
	81450-(52000+53800-46000)
3-a)	total bad detbs expense for the year 2018
	75,450
3-b)	Balance Sheet
	Current assets
	Account receivable				679,000
	less Allowance for uncollectible accounts				81,450
	Net account receivable				597,550