Question 16:
Using the Percentage of Sales method, multiply $60,000 in sales by .03 to get the
amount to debit to Bad Debt Expense and to credit to Allowance for Uncollectible
Accounts of $1,800. So the ending balance in the Allowance account will be:
Allow. For Uncoll.
Accounts
_________________________
Beg. Bal.
Writeoffs
(750)
1,000
_________________________
Bal. Before Adj.
250
Adj for Bad Debt Exp.
(1,800)
_________________________
End Bal. After Adj.
(1,550)
Using the Percentage of Outstanding Receivables method:
The first thing to do is calculate the ending balance (before adjustment) in the
Accounts Receivable account:
Accounts Receivable
_________________________
Beg. Bal.
10,000
Credit Sales
60,000
Collections
55,000
Writeoffs
1,000
_________________________
Bal. Before Adj.
14,000
Since the ending A/R balance (before adjustment) is $14,000, the ending balance in
the Allowance for Uncollectible Accounts after adjustment needs to be $840
($14,000 * .06).
The ending balance in the Allowance for Uncollectible Accounts account before
adjustment is:
Allow. For Uncoll.
Accounts
_________________________
Beg. Bal.
Writeoffs
750
1,000
_________________________
Bal. Before Adj.
250
Since the account has a debit balance of $250 and it needs to have a credit balance
of $840, the credit to the Allowance account needs to be $250 + $840, or $1,090.
Therefore, the debit to Bad Debt Expense will be $1,090.
Here is the ending balance, after adjustment for Bad Debt Expense, in the Allowance
for Uncollectible Accounts:
Allow. For Uncoll.
Accounts
_________________________
Beg. Bal.
Writeoffs
750
1,000
_________________________
Bal. Before Adj.
Adj for Bad Debt Exp.
End. Bal After Adj.
250
1,090
_________________________
840