Allowance Method Steinbrook Company which has been in busine

Allowance Method Steinbrook Company, which has been in business for three years, makes all of its sales on account and does not offer cash discounts. The firm\'s credit sales, collections from customers, and write-offs of uncollectible accounts for the three-year period are summarized below:

Required
If Steinbrook Company used an allowance method of recognizing credit losses and provided for such losses at the rate of one percent of credit sales, what amounts in accounts receivable and the allowance for doubtful accounts should appear on the firm\'s balance sheet at the end of 2014? What total amount of bad debts expense would have appeared on the firm\'s income statement during the three year period?

Year	Sales	Collections	Accounts Written Off
2012	$755,000	$733,000	$4,300
2013	880,000	864,000	4,800
2014	976,000	938,000	4,500

Solution

Balance of Accounts receivable Total sales (755000+880000+976000) 2611000 Less: Tota l collections 2535000 Less: Total bad debts 13600 Balance of Accounts receivable 62400 Balance of Allowance for doubtful accounts Total credit sales (2611000*1%) 26110 Less: Amount written off 13600 Balance of Allowance for doubtful accounts 12510 Bad debts expense: Total credit sales 2611000 Bad debts expense at 1% 26110