Question

Schreiber Industries estimates bad debts at 2% of sales. Schreiber began the year with $270,000 of account receivable and $38,600 of allowance of bad debts. During the year, Schreiber had sales of $920,000, wrote off bad debts of $26,000, and received cash on account of $905,000. What amount of accounts receivable, net allowance for bad debts, should appear on the year-end balance sheet?

Answer 1

Opening balance in accounts receivable	$   270,000
Add: Credit sales	$   920,000
Less: Baddebts written off	$   (26,000)
Less: Cash received	$ (905,000)
Closing balance in accounts receivable	$   259,000

Opening balance in allowance for doubtful accounts	$   38,600
Add: Baddebts expenses ($920,000*2%)	$   18,400
Less: Baddebts written off	$ (26,000)
Closing balance in allowance for doubtful accounts	$   31,000