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Accounting for uncollectible accounts - allowance method

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Accounting for uncollectible accounts using the allowance method, and reporting receivables on the balance sheet

At September 30, 2012, the accounts of Mountain Terrace Medical Center (MTMC) include the following:

Accounts receivable $145,000
Allowance for uncollectible accounts (credit balance) 3,500

During the last quarter of 2012, MTMC completed the following selected transactions:
Dec 28
Wrote off accounts receivable as uncollectible: Regan, Co., $1,300; Owen Mac, $900; and Rain, Inc., $700.
Dec 31
Recorded uncollectible account expense based on the aging of accounts receivable, as follows:

AGE OF ACCOUNTS
Accounts Receivable 1-30 days 31-60 days 61-90 days over 90 days
$165,000 $97,000 $37,000 $14,000 $17,000
Est. % uncollectible .03% 3% 30% 35%

Requirements
1. Journalize the transactions.
2. Open the Allowance for uncollectible accounts T-account, and post entries affecting that account. Keep a running balance.
3. Show how Mountain Terrace Medical Center should report net accounts receivable on its December 31, 2012 balance sheet. Use the three line reporting format.

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Solution Summary

This solution illustrates how to compute the allowance for uncollectible accounts using an aging schedule and how to journalize the necessary transactions.

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