A company uses the aging of accounts receivable method to es

A company uses the aging of accounts receivable method to estimate its bad debts expense. On December 31 of the current year an aging analysis of accounts receivable revealed the following

Solution

Estimated Account age Balance percentage Bad debts Current (not yet due) 6,20,000 0.50% 3100 1---30 days past due 2,70,000 2% 5400 30---60 days past due 1,45,000 8% 11600 61--90 days past due 55,000 20% 11000 90-120 days past due 32,000 50% 16000 over 120 days past due 18,000 70% 12600 Total 11,40,000 59700 a) Amount of the Allowance for Doubtful accounts $59,700 b) 1) Bad debts expense to be reported opening balance 41,000 less:Written off -43200 2,200 Add:Estimated bad debts 59,700 Bad debts expense to be reported 61,900 answer 2) T-Account Bad debts expense opening bal 0 adjustment 61,900 End balance 61900 3) Allowance for Doubtful accounts Written 43,200 opening bal 41,000 Bad debts expense 61,900 end balance 59,700 c) Adjusting entry Account titles & Explanations Debit Credit Bad debts expense 61,900 Allowance for Doubtful accounts 61,900 d) Balance sheet (partial) Account receivable 11,40,000 less:Allowance for doubtful accounts -59700 net realizable value 10,80,300