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Unformatted text preview: oubtful accounts. (See below)
• Aging the Accounts Receivable: Similar to the percentage of accounts receivable method, but
determines bad debt amount by evaluating how old the outstanding receivables are.
Example: The Company reviews their accounts receivables balances of $40,000, and determines the
Age of Receivables
Est. % uncollectible
Less than 30 days
Over 90 days
Total Amount estimated to be uncollectible: (in the allowance account) Est. $ uncollectible
$2,150 This amount determines the ENDING BALANCE needed for the Allowance account (a contra asset).
Assuming the allowance account had a beginning balance (from a prior year) of $500, what adjusting
entry is necessary?
Allowance for D
1650 Adjustment needed
2,150 Ending Balance The entry to company would need to make is:
Bad Debts Expense
Allowance for Doubtful Accounts $ 1,650 Write off of a customer balance: Now suppose a customer with an outstanding balance of $50 files
bankruptcy, so the company knows they will not collect on a part...
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