462 Words2 Pages

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

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