Question

During a recent year Kelly’s Boutique had sales on account of $6,025,000, collections of $5,800,000, write-offs of $50,000, a beginning balance in accounts receivable of $500,000, and a beginning balance in the allowance for uncollectible accounts of $37,000. At year end, $600,000 of accounts receivable were current, $39,000 were 0–30 days past due, $18,000 were 31–60 days past due, $10,000 were 61–90 days past due, and $8,000 were over 90 days past due. The company believes .8 percent of sales will not be collected. They also have experience that suggests that 4 percent of all current receivables, 8 percent of receivables 0–30 days past due, 20 per- cent of receivables 31–60 days past due, 25 percent of receivables 61–90 days past due, and 75 percent of receivables over 90 days past due will not be collected. Using the file ch7-06, complete the allowance for uncol- lectible accounts analysis for both standard methods. Save the file as ch7- 06_student_name (replacing student_name with your name). Print this completed worksheet

Answer 1

Sales Method
Uncollectible Account expense = $6025000 x 0.8% = $48200
Allowance for Uncollectible account = $48200 - (37000-50000) = $61200

Ageing of Receivables method
Uncollectible account expense = 39220 - (37000-50000) = $52220

	Accounts Receivable	Percent Uncolletible	Allowance
Current	600,000	4%	24,000
0-30 days	39,000	8%	3,120
31-60 days	18,000	20%	3,600
61-90 days	10,000	25%	2,500
Over 90 Days	8,000	75%	6,000
	675,000		39,220