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?

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 2 years ago

The two allowance methods used by companies in estimating uncollectible account receivable are percentage-of- sales and...

The two allowance methods used by companies in estimating uncollectible account receivable are percentage-of- sales and percentage-of-receivables. In a paragraph provide which method you would recommend and why, if you were a financial executive for a company?

Describe the two methods of accounting for bad debts under the allowance method (not the direct...

Describe the two methods of accounting for bad debts under the allowance method (not the direct write off method used on tax returns). Include how we estimate the allowance needed under one of the methods and how we account for write offs and recoveries of write offs.

Explain the percentage of accounts receivable and the accounts receivable aging allowance methods.

Explain the percentage of sales and the direct write off methods.

Critics of the percentage-of-sales method of budget setting contend that this method “reverses the advertising and...

Critics of the percentage-of-sales method of budget setting contend that this method “reverses the advertising and sales relationship” and that it “treats advertising as an expense rather than an investment.” Explain what these arguments mean and discuss their merits

For each employee listed, use both the wage-bracket method and the percentage method to calculate the...

For each employee listed, use both the wage-bracket method and the percentage method to calculate the federal income tax withholding. Refer to Appendix A, 2017 and Appendix 2018 Federal Tax Tables. I need to see the step by step for both 2017 Tax Table calculation and the 2018 Tax Table calculation. Thank you! Pedro Evans (married, 3 withholding allowance) earned weekly gross pay of $1,819.00. Using wage bracket method: Federal income tax withholding=$_________________ Using percentage method; Federal income tax withholding=$____________________...

Please use the percentage of sales method and the ratio method where appropriate to forecast 2018E...

Please use the percentage of sales method and the ratio method where appropriate to forecast 2018E financial statements using the 2017 data. Use formulas to do all calculations of the forecast estimates and use the iteration formula to determine the interest expense and amount of debt at the same time. All assumptions should be included. At the beginning of 2017, Student Copy anticipated a substantial increase in sales. Despite good sales the company experienced a shortage of cash and found...

How will a financial projection be developed? What is the percentage of sales method? What is...

How will a financial projection be developed? What is the percentage of sales method? What is its utility in corporate finance?

Describe the percentage of sales method and briefly explain why it is used widely.

Estimating bad debts can be done by the percentage of sales method and the aging of...

Estimating bad debts can be done by the percentage of sales method and the aging of accounts receivable method. each method has its drawbacks and advantages. If the company, you were reviewing used the percentage of sales method and you noted that the allowance shown on the balance sheet was growing disproportionately to the accounts receivable give possible reasons for the disproportionate growth and suggest a means to adjust this situation if necessary. See example below. Year Accounts Receivable Allowance ...

Question