Principles of Financial Accounting · free preview
A Comprehensive Example of Bad Debt Estimation
Walking one full estimate, from credit sales through the aging schedule, the adjusting entry, and a subsequent write-off, shows how the allowance method's pieces fit together in practice.
1. The situation at year end
The situation at year end
2. The aging schedule in action
The aging schedule in action
3. The statements after estimation
The statements after estimation
4. A write-off the following March
A write-off the following March
5. Required allowance from aging
An aging schedule shows expected losses of 900, 1,800, 2,250, and 3,150 dollars across four age groups. What is the required allowance balance?
6. First-year adjusting entry
With no existing allowance balance and a required allowance of 8,100 dollars, which adjusting entry applies at year end?
7. Net realizable value after adjustment
Accounts receivable total 150,000 dollars and the allowance now stands at 8,100 dollars. What is net realizable value?
8. Write-off effect on net value
A 2,400 dollar account is written off against the allowance. What happens to net realizable value?
9. Youngest group expected loss
Balances under 30 days total 90,000 dollars with a 1 percent loss rate. Compute the expected loss in dollars, number only.
10. Allowance after write-off
The allowance held 8,100 dollars before a 2,400 dollar write-off. Compute its balance after the write-off in dollars, number only.
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