Question

At the beginning of the current period, Rose Corp. had balances in Accounts Receivable of $200,000 and in Allowance for Doubtful Accounts of $9,000. During the period, it had credit sales of $800,000 and collections of $763,000. It wrote off as uncollectible accounts receivable of $7,300. Uncollectible accounts are estimated to total $25,000 at the end of the period. (Omit recording cost of goods sold.)

Instructions

Record sales and collections during the period.

Record the write-off of uncollectible accounts during the period.

Record bad debt expense for the period.

Determine the ending balances in Accounts Receivable and Allowance for Doubtful Accounts.

	Assets =			Liab. +	OE
	Cash	Gross A/R	Allowance D/A	n/a	RE	notes
Beg Balance	n/a	200,000	-9,000	n/a	n/a
Sales
Collections
Write off
Bad debt expense
Ending balance	n/a			n/a	n/a

Compare the net realizable value of the receivables at the beginning to the end of the period.

In comparing the beginning to the end of the period, does management expect that they will be able to collect a greater or lesser proportion of outstanding receivables? Why?

Answer 1

			Cash	Gross AR	Allowance	Liabilities+	Ret Earnings	Notes
Beg Balance				200000	9000
Sales				800000			800,000	Increases the revenue with sales
Collections			763000	-763000				Cash collected decreases the AR
Write off				-7300	-7300			Reduces both AR and allowance
bad debt expenses					23300		-23,300	Bad debts expenses reduces the balance the net income
Ending balance			763000	229700	25000		776,700
Net realizable value of Accounts receivable:
Accounts receivable (Gross)				229700
Less: Allowance for uncollectble accounts				25000
Accounts receivable (Net)				204700
% of Uncollectible for Gross AR (Beginning ):   9000/200000*100 = 4.50%
% of Uncollectible for Gross AR (Ending ):   25000/229700*100 = 10.88%
Thus, Management expects the lesser collections of outstanding receivables.