Question

Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for bad debt expense is recorded only at December 31, the company’s fiscal year-end. The 2020 balance sheet disclosed the following: Current Assets: Receivables (net of allowance for uncollectible accounts of $49,000): $527,000 During 2021, cash sales were $1,845,000, cash collections from customers $1,945,000, and $58,000 in accounts receivable were written off. In addition, $4,900 was collected from a customer whose account was written off in 2020. An aging of accounts receivable at December 31, 2021 revealed the following: Age Group % of YE Receivables in Group % Uncollectible 0 – 60 days 60% 3% 61 – 90 days 10% 5% 91 – 120 days 20% 25% Over 120 days 10% 45% Bad Debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. The allowance for uncollectible accounts is determined by an aging of A/R.

Question: What would be the net amount of A/R reported on the 2021 balance sheet?

Answer 1

Accounts receivable balance:
Beginning balance of Accounts receivable (527000+49000)	576000
Add: Credit sales					1845000
Less: Amount collected				-1945000
Less: Amount written off				-58000
Accounts receivable balance:				418000
Age		AR	% Uncoll.	Required balance
0-60 days		250800	3%	7524
61-90 days	41800	5%	2090
91-120 days	83600	25%	20900
Over 120 days	41800	45%	18810
Required balance of Allowance		49324
Net Accounts receivable to be shown in Balance sheet
Accounts receivable -Gross			418000
Less: Allowance for uncollectible accounts		49324
Net Accounts receivable to be shown in Balance sheet	368676