Year end balance in allowance for doubtful accounts?
Assume that your company uses the allowance method to account for uncollectible receivables. At the beginning of the year, the allowance for doubtful accounts had a balance of $1400. At the end of the year, bad debt expense of $3400 was estimated. Also, uncollectible accounts of $1900 were written off. What is the year end balance in the allowance for doubtful accounts?
Allowance for Doubtful Accounts and Bad Debts?
I need help figuring out these two problems. 1. At the end of the current year, Accounts Receivable has a balance of $875,000; Allowance for Doubtful Accounts has a debit balance of $8,000; and net sales for the year total $3,940,000. Bad debt expense is estimated at 1/4 of 1% of net sales. Determine the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense. Determine the net realizable value of accounts receivable. 2. At the end of the current year, Accounts Receivable has a balance of $500,000; Allowance for Doubtful Accounts has a credit balance of $4,500; and net sales for the year total $2,250,000. Using the aging method, the balance of Allowance for Doubtful Accounts is estimated as $22,500. Determine the amount of the adjusting entry for uncollectible accounts. Determine the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense. Could you please help me understand how you get the answers.
3 questions about allowance for doubtful accounts CAN YOU PLEASE EXPLAIN HOW YOU GOT THE ANSWER, IM LEARNING?
1). Allowance for Doubtful accounts has a credit balance of $10,000 at the end of the year, before adjustments. Sales for the year amounted to $1,500,000, and sales returns and allowances amounted to $50,000. If uncollectible accounts expense is estimated at 2% of net sales, the amount of the appropriate adjusting entry will be?. When you're using percentage of sales as a basis, the adjustment is simple. 1,500,000 - 50,000 = 1,450,000 net sales 1,450,000 x 2% = 29,000 amount of adjustment Dr Bad Debt Expense 29,000 Cr Allowance for Doubtful Accounts 29,000 then to continue that problem......2.) if, instead of a percentage of net sales, the adjusting entry in question 1 is based on an analysis of receivables that indicates doubtful accounts of $20,500, the amount of the adjustment will be? When using Accounts Receivable as a basis, it's a little more complicated. You have to take into consideration the current balance in Allowance for Doubtful Accounts. There is currently a credit balance in the Allowance account of 10,000. Now what you want to do is turn that $10,000 credit balance into a $20,500 credit balance (the amount that is estimated to be uncollectible). 20,500 - 10,000 = $10,500 adjustment Dr Bad Debt Expense 10,500 Cr Allowance for Doubtful Accounts 10,500 The Allowance account now has a credit balance of $20,500 3.) Allowance for doubtful accounts has a debit balance of $1,500 at the end of the year, before adjustment. If an analysis of receivables indicates doubtful accounts of $17,000, the amount of the appropriate adjusting entry will be? This might be a little more tricky. Notice the Allowance account now has a DEBIT balance of $1,500. You want to turn that $1,500 debit balance into a $17,000 credit balance. 1,500 + 17,000 = $18,500 adjustment Dr Bad Debt Expense 18,500 Cr Allowance for Doubtful Accounts 18,500 The Allowance account now has a credit balance of $17,000
What do you do to Allowance for Doubtful Accounts when the Accounts Receivable is paid off?
Instead of credit, you should debit AFDA by an amount such that the balance in this account that is specific to the accounts receivable being paid off is zero.Let's say you have a customer with accounts receivable balance of $1,000. At this point in time, you have made specific provision of $50 for this amount. Case 1: If in the next day the customer makes cash payment of $1,000, it happens that you have make an overprovision. To clear off the AFDA accounts, you will need to flush the overprovision to profit or loss. Hence, you should record:Dr Cash $1,000Cr Accounts receivable $1,000To record settlement of accounts receivableDr AFDA (contra-asset) $50Cr Doubtful debt expense (income statement) $50To record overprovision of doubtful debtCase 2:If the customer pays you $950 which is exactly what you're expecting. The balance in the AFDA is debited and netted off against the accounts receivable.Dr Cash $950Dr AFDA $50Cr Accounts receivable $1,000To record settlement of accounts receivable
Bad debt expense and Allowance for doubtful accounts?
From the four choices provided, select the one correct statement. Can't find the answer in my financial accounting book, please advise? Bad Debts Expense is a real account and remains open at the end of the fiscal period while Allowance for Doubtful Accounts is a nominal account and is closed at the end of the fiscal period. Bad Debts Expense and Allowance for Doubtful Accounts are both nominal accounts and closed at the end of the fiscal period. Bad Debts Expense is a nominal account and is closed at the end of the fiscal period while Allowance for Doubtful Accounts is a real account and remains open at the end of the fiscal period. Bad Debts Expense and Allowance for Doubtful Accounts are both real accounts and neither are closed at the end of the fiscal period.
Why is allowance for doubtful accounts established in the same accounting period in which a sale is performed?
It can be, that that is not the principle that determines when an allowance is required.If I sold you something on credit on December 31st and my company is a calendar year end, is there any reason for me to believe you won’t pay me? Should I set up a reserve simply because I’m at year end?Of course, the answer is no.The word “doubtful accounts” should give you a big clue as to what this particular reserve is all about.As the name suggests, when you have some level of doubt as to whether a receivable can be collected, the principle of conservatism says that you should reserve for potentially uncollectible receivables.Doubt can be the end result of many things, but you should not rely purely on your ‘gut instinct’. Historical collection trends and aging, combined with what you know of any specific customer (i.e. verge of bankruptcy, Chapter 11, severe cash flow problems as per discussions with their CFO, etc.) will lead you to ‘logical’, fact-based decisions on which to quantify your reserves.
Do all contra accounts get closed?
A2A.A contra account is an account which is having a balance opposite to that of it's general account. For eg, the normal asset account has a debit balance always, however the contra asset account will have a credit balance.One of the common examples is accumulated depreciation account.Normal entry for depreciation is:Depreciation A/c DrTo Asset A/cBut when we use the Accumulated depreciation account, the entry becomesDepreciation A/c DrTo Accumulated Depreciation A/c.So the asset will always show the same balance instead of the diminishing balances for the entire year.And at the year end,Accumulated depreciation A/c DrTo Asset A/cAnd hence the accounts get closed. And the asset shows it's correct value as of date.Similar example is for accounts receivable and bad debts.Trust this helps.
What does an amount reported as an allowance for uncollectible accounts represent?
Well, it’s the end of the year. We are preparing our balance sheet, and we have a bunch of receivables. Historically, we know that we’re not going to collect all of them, a few “bad apples” are buried in the list, but we don’t know which ones.We do know that at some point, a few of the customers we extended credit to will not pay us. We’ve been in business a while and we know it’s just a part of doing business. Over time, we’ve seen that a certain percentage of our customers will end up being deadbeats. (or, we’ve seen industry statistics ) Ok, so we try to minimize that by using credit applications, checking references, etc. But we’re not 100 % effective…Since we don’t know the exact receivables that will end up being bad, we take an estimate. There are various ways of doing that, which are beyond the scope of this answer… but we end up with a figure. That figure represents an expense of doing business. Since we recorded the revenues in the year, we ought to record the expense ( due to the “matching concept”) so we record our estimate. Later when certain receivables go south, we will have already recorded the expense, we will just reduce the receivables and reduce the allowance, with no P/L effect.This method takes time and effort, but it results in a receivables figure which is realistic. A lender or investor looks at the A/R and sees the allowance, and knows that we are attempting to depict a real amount that we can collect.The “direct charge off” method is another acceptable method, and over time should result in the same bad debt expense, but at any point, the balance sheet is probably overstated by the “bad apples” buried in the receivables figure.So we could say that the reserve method is oriented towards the correct balance sheet presentation, whereas the direct charge off method is not.At http://CEAnow.org we have several accounting videos discussing these topics in detail.
What are the differences between loan loss provisions, allowance for bad debts, and bad debt expenses?
An allowance for bad debts is a balance sheet contra account to accounts receivable. Contra account means a reduction to.Example: In the aggregate, I have $100 million in gross accounts receivable. At the balance sheet date, I assess collectability and conclude that 5% of my total receiveables will go sour. My 'allowance for bad debts' will be $5 million, making my 'net receivables' $95 million ($100 million gross minus $5 million allowance).Bad debts expense, in contrast, is the sister account to allowance for bad debts. This is a 'period' expense which is recorded on the income statement, instead of the balance sheet. It is subtracted along with all the other expenses at the end of each reporting month, quarter or year.At the end of the year, all expense accounts, including bad debts expense, are reset back to zero. The allowance for bad debts is never reset and always reflects the uncollectibility factor associated with open receivables.I've never come across the specific term 'loan loss provision', which seems to be an industry-specific term. Based on the phrasing, it appears to be the equivalent industry-specific terminology of 'allowance for bad debts'.I hope this helps.