There are two methods to calculate the allowance. One is the percentage of sales method that...

There are two methods to calculate the allowance. One is the percentage of sales method that determines the amount based on multiplying the expected percentage of uncollectibles by the net credit sales. There is also the aging of receivables method. Can you tell me what that is?

Solutions

Expert Solution

Aging of receivables method is that where Account receivables are ‘aged’ and the period for which they remained ‘due’ is calculated.
A certain estimated % is applied to each age group that is estimated to be uncollectible.
Total of Estimated Uncollectible amount will be the adjusted balance of Allowance account required.
Example

	Accounts receivables	% uncollectibles	Estimated Uncollectibles
	[A]	[B]	[C = A x B]
Not due	$820,000	1.20%	$9,840
1 to 30	$328,000	1.95%	$6,396
31 to 60	$65,600	6.45%	$4,231
61 to 90	$32,800	32.50%	$10,660
Over 90	$13,120	67%	$8,790
Estimated balance of Allowance for Uncollectibles			$39,918

ekkarill92 answered 1 year ago

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