The general ledger account for Accounts Receivable shows a debit balance of $40,000. The Allowance for Uncollectible Accounts has a credit balance of $2,000. Net sales for the year were $250,000. In the past, 3 percent of net sales have proved uncollectible. An aging of accounts receivable results in an estimate of $9,000 of uncollectible accounts receivable.
(1) Uncollectible Accounts Expense
(2) the ending balance of the Allowance for Uncollectible Accounts using (a) the Percentage of Net Sales method and (b) the Accounts Receivable Aging method.
Using the Percentage of Net Sales method
(1) Uncollectible Accounts Expense: $250,000*3%= $7,500
(2) The ending balance of the Allowance for Uncollectible Accounts : Opening balance = $2,000 (cr) + $7,500 = $9,500 ...
This solution explains how to compute the amount that should be debited to the Uncollectible Accounts Expense. Two methods are used: the Percentage of Net Sales Method and Accounts Receivable Aging Method.