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bryris
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| Posted: 02 Oct 2009 at 18:52 | IP Logged
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You start with a credit balance in the allowance account for the 22,200. You then put the 61,200 at the bottom of the credit side, because you know that the balance is that at the end of the period.
Recall that the entry to write off A/R is this:
Allowance XX
A/R XX
Therefore, you'll debit the T-account for the 50,000. The write off does not affect the bad debt expense anymore. In effect, you are "confirming your suspicions" that the amount is indeed uncollectable.
Then its just basic algebra:
22,200 + X - 50,000 = 61,200. Solve for X. The answer I got was 89,000.
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Megan
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| Posted: 02 Oct 2009 at 19:07 | IP Logged
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Hey..thanks so much for the explanation. That is the correct answer. However, I am still confused as to the bad debt expense. I was working on this problem:
The Harper Company begins the current year with $300,000 in accounts receivable and $12,000 as the credit balance in the allowance for doubtful accounts. During the year, for interim reporting purposes, the company recognizes bad debts as 1 percent of sales because that approach is easy to apply. At the end of the year, the company adjusts its records so that the allowance account is 4 percent of ending receivables. During the current year, sales were $1.5 million and cash collections were $1.3 million. In addition, $10,000 in accounts were written off as uncollectible. On the income statement for the year, what amount of bad debt expense should be reported?
The answer is $17600.
So my question is if X in the allowance account is the amount of bad debt to be reported on the income statement, then why don't we add the 15000 bal to 17600 or what do we do with the 15000?
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bryris
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| Posted: 02 Oct 2009 at 19:20 | IP Logged
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The logic still works:
You start with a credit balance of 12,000 in the allowance account. During the year, 1,500,000 in sales generated an additional 15,000 to the credit side of the allowance account (also your first debit to BD exp for the year). You then remove 10,000, a debit to the account, for the write off.
Then you analyze the A/R side to determine the 4% part. 300,000 beginning balance + 200,000 (net increase during the year before the write off) - 10,000 (the write off) give you an ending A/R of $490,000. Multiply that by 4%, yields 19,600. That should be the ending balance of the allowance account.
So, set up the algebra:
12,000 + 15,000 - 10,000 (the write off) + X = 19,600.
X= 2,600 <--- an additional debit to BD exp and a credit to allowance.
15,000 (from the sales piece) + 2,600 (from the 4% piece) = 17,600 total bad debt expense.
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Megan
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| Posted: 02 Oct 2009 at 19:24 | IP Logged
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If you have already taken 15000 into account when determining 2600, why do we double count it? Why isn't the answer just 2600?
Sorry if i sound dumb, but this is confusing me.
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Xalina
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| Posted: 02 Oct 2009 at 21:23 | IP Logged
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The question is asking for the total bad debt expense of the year. You already have an expense of 15000 based on sales. To this you'll add any adjustments you made based on the accounts receivable balance.
Does that clear things up?
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Topic: Find missing peice in a Taccount
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