The following information relates to a company’s accounts receivable:
accounts receivable balance at the beginning of the year, $300,000; allowance for uncollectible accounts at the beginning of the year, $25,000 (credit balance); credit sales during the year, $1,500,000; accounts receivable written off during the year, $16,000; cash collections from customers, $1,450,000. Assuming the company estimates bad debts at an amount equal to 2% of credit sales.
1. Calculate the year-end balance in the allowance for uncollectible accounts.
2. Calculate bad debt expense for the year.

1. the year-end balance in allowance for uncollectible accounts is $6,680.

2. The bad debt for the year is -$2,320.

Explanation:

1. To calculate the year-end balance in allowance for uncollectible accounts:

First we calculate the Account Receivable which is calculated as thus:

 ==> Account Receivable (ending balance) = accounts receivable (beginning balance) + Credit sales  - cash collected - written off accounts receivable.

==> 300,000 + 1,500,000 - 1,450,000 - 16,000 = $334,000

Therefore the account receivable = $334,000.

Estimated percentage of bad debts = 2%

allowance of uncollectible accounts = Account Receivable x Estimated percentage.

==> $334,000 x 2% = $6,680

Hence, the year-end balance in allowance for uncollectible accounts is $6,680.

2. To calculate the bad debt expense for the year, we use:

allowance of uncollectible acountsl (ending balance) -  [Allowance of uncollectible account (opening balance) - accounts receivables written off)

==> $6,680 - ($25,000 - $16,000)

     = 6,680 - 9,000

     = -$2,320

The bad debt for the year is -$2,320. This is incurred when customers pay for an invoice when it has been written off.

1. Calculate the year-end balance in the allowance for uncollectible accounts.

2. Calculate bad debt expense for the year.

Explanation:

to record write offs:

Dr Allowance for uncollectible accounts 16,000

    Cr Accounts receivable 16,000

to record bad debt expense:

Dr Bad debt expense 30,000

    Cr Allowance for uncollectible accounts 30,000