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Allowance for Doubtful Accounts.

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The income statement approach to estimating uncollectible accounts expense is used by Dexter Company.
On February 28, the firm had accounts receivable in the amount of $437,000 and Allowance for Doubtful Accounts
had a credit balance of $2,140 before adjustment. Net credit sales for February amounted to $3,000,000. T
he credit manager estimated that uncollectible accounts expense would amount to 1% of net credit sales made during February.
On March 10, an accounts receivable from Angie Grant for $6,100 was determined to be uncollectible and written off.
However, on March 31, Grant received an inheritance and immediately paid her past due account in full.

(a) Prepare the journal entries made by Dexter Company on the following dates:
1 28-Feb
2 10-Mar
3 31-Mar

(b) Assume no other transactions occurred that affected the allowance account during March.
Determine the balance of Allowance for Doubtful Accounts at March 31.


Solution Preview

There is an error in calculating the allowance for doubtful debts. There are two methods available to you -
1. As a percentage of sales
2. As a percentage of accounts receivable

In percentage of sales method, the allowance is made as a percent of sale (in the given problem - 1% of credit sales). Here we do not look at the balance in the Allowance for Doubtful ...

Solution Summary

The solution explains the journal entries relating to write off of receivables and calculation of the allowance for doubtful accounts