Week 3 Assignment 1

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Week 3 – Assignment 1 – Problem 5-24 Determining account balances: percent of revenue allowance method of accounting for uncollectible accounts. A. Compute the following amounts. 1. Using the allowance method, the amount of uncollectible accounts expense for 2012. The estimate of bad debts expense was .5% (which equals .005) of sales on account. Sales on account totaled 925,000 925,000 X .005 = 4,625 This is the uncollectible accounts expense for 2012 The entries would be Debit Bad Debt expense 4,625 Credit Allowance for Doubtful Accounts 4,625 The credit balance in Allowance for Doubtful Accounts would be: Allowance for doubtful accounts 4,725 Minus the amount wrote off 3,100 Plus the Credit Allowance of Doubtful accounts 4,625 The credit balance for Doubtful Accounts is now 6,250 2. Net realizable value of receivable at the end of 2012. Take the Beginning Accounts Receivable Balance 52,500 Add Sales on Account 925,000 Minus Collections of Account Receivables 835,000 Minus Account written off 3,100 Equals Gross Value of Accounts Receivables 139,400 Minus Credit Balance in Allowance for Doubtful Acct. 6,250 Net Realizable Balance of Accounts Receivable of 2012 133,150 B. Explain why the uncollectible accounts expense amount is different from the amount that was written off as uncollectible. With the allowance method the amount of doubtful accounts collected is an estimate. When the real amount of accounts that where collected are different than what was estimated. If this problem continues they need to adjust the