Question

Class Quest Company had the following balances as at January 1, 2016:

Accounts Receivable                           $600,000 Debit

Allowance for Doubtful Accounts        $32,000 Credit

During the fiscal year 2016 (Jan 1 to Dec 31 2016), the company had the following transactions:

    Total Sales                                                 $7,200,000 (of which 40% represents cash sales).

    Cash collected from credit customers         $3,000,000

    Write-offs of uncollectible accounts             $22,000.

Required:If the company estimates that 1% of the credit sales are uncollectible, what amount would the company record as the bad debts expense for the year?

Answer 1

Part 1)Estimated amount of bad debts:

1% of credit sales

= (7200000*60%)*1%

=4320000*1%

=$43,200

Part 2)

Balance in allowance for doubtful account:

=32,000-bad debts written off

=32000-22000

=$10,000

Part 3)

Amount to be debited to bad debt expense account=

43200-10000

=$33,200

**Please note than opening accounts receivable and cash received from credit customers have been ignored as there was no role of the same in calculations because uncollectibles is a percentage of credit sales.

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