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Future CPA
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Joined: 04 Dec 2008
Location: United States
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Posts: 504

Posted: 26 Nov 2009 at 12:24 \| IP Logged

At January 1, 1994, Jamin Co. had a credit balance of $260,000 in its allowance for uncollectible accounts. Based on past experience, 2% of Jamin's credit sales have been uncollectible. During 1994, Jamin wrote off $325,000 of uncollectible accounts. Credit sales for 1994 were $9,000,000. In its December 31, 1994, balance sheet, what amount should Jamin report as allowance for uncollectible accounts?

Answer: $115,000

Becker's calculation:
Beginning Balance    $260,000
Additions: ($9,000,000 x 2%)    180,000
Subtract: write-offs    (325,000)
Ending Balance    $115,000

Is there any other way to come up with the same answer? For some odd reason, my mind refuses to understand this way. When it comes to A/R allowance, I usually make a T-account, but I come up with a different answer. Please help explain!

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lovethepirk
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Joined: 10 Jul 2009
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Posts: 295

Posted: 26 Nov 2009 at 12:47 \| IP Logged

I don't use T accounts I just try to simplify stuff....

You have a fund for reducing your A/R called allowance for uncollectible accounts and it's purpose is to help you reflect your real A/R given the fact that some people just don't pay their bills.

1)You start the year Jan 1st with the balance at 260,000.
2)You sold 9,000,000 worth of stuff so you better add to this number cause 2% of those people won't pay their bills
3)You wrote off 325,000 of the A/R, which reduces the Allowance account by 325,000 as well.
Allowance for uncollectible accounts.........325,000
A/R......................................................... ......325,000

So...
260,000 + 2% of 9,000,000 - 325,000 of writeoff = 115,000

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Future CPA
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Joined: 04 Dec 2008
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Posted: 26 Nov 2009 at 12:52 \| IP Logged

This all seemed so much simpler now!! Thanks a lot!

__________________
B:85
A:90
R:92
F:90
My inspiration: "O mankind! We have created you male & female, & have made you nations & tribes that ye may know one another. The noblest of you is the best in conduct."-Quran

snehakhabiya
Contributor

Joined: 21 Mar 2008
Location: United States
Online Status: Offline
Posts: 63

Posted: 27 Nov 2009 at 00:02 \| IP Logged

While answering questions related to write offs and
uncollectible accounts, is there a formula we can apply
for answering the questions faster?

Op. AR
add: Purchases
add: Freight in (is this correct?)
less: clg. AR
= COGS

Can someone present the formula to get an answer for
Writeoffs or uncollectible accounts ?

TIA

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Norman Parker
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Joined: 02 Apr 2016
Location: United States
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Posts: 2

Posted: 02 Apr 2016 at 15:40 \| IP Logged

T-Accounts are helpful for some of us.

The allowance account is the opposite of the A/R
account with CR positive.

Allowance
____________________
DR -           ; CR +
                260 Jan 1 Beg balance
325 (w/o)
                180 CY Bad Debt Exp (2% of 9,000)

Ending CR Bal 115

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