Computing Bad Debt Expense Using Aging of Accounts Receivable Method Brown Cow Dairy uses the aging approach to estimate Bad Debt Expense. The Description Computing Bad Debt Expense Using Aging of Accounts Receivable Method Brown Cow Dairy uses the aging approach to estimate Bad Debt Expense. The balance of each account receivable is aged on the basis of three time periods as follows: (1) 1–30 days old, $12,000; (2) 31–90 days old, $5,000; and (3) more than 90 days old, $3,000. Experience has shown that for each age group, the average loss rate on the amount of the receivable due to uncollectibility is (1) 3 percent, (2) 15 percent, and (3) 30 percent, respectively. At December 31, 2010 (end of the current year), the Allowance for Doubtful Accounts balance was $800 (credit) before the end-of-period adjusting entry is made. Required: 1. Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts. 2. What amount should be recorded as Bad Debt Expense for the current year? 3. If the unadjusted balance in the Allowance for Doubtful Accounts was a $600 debit balance, what would be the amount of Bad Debt Expense in 2010
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Computing Bad Debt Expense Using Aging of Accounts Receivable Method
Brown Cow Dairy uses the aging approach to estimate Bad Debt Expense. The balance of each account receivable is aged on the basis of three time periods as follows: (1) 1–30 days old, $12,000; (2) 31–90 days old, $5,000; and (3) more than 90 days old, $3,000. Experience has shown that for each age group, the average loss rate on the amount of the receivable due to uncollectibility is (1) 3 percent, (2) 15 percent, and (3) 30 percent, respectively. At December 31, 2010 (end of the current year), the Allowance for Doubtful Accounts balance was $800 (credit) before the end-of-period
Required:
1. Prepare a schedule to estimate an appropriate year-end balance for the Allowance for Doubtful Accounts.
2. What amount should be recorded as Bad Debt Expense for the current year?
3. If the unadjusted balance in the Allowance for Doubtful Accounts was a $600 debit balance, what would be the amount of Bad Debt Expense in 2010?
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