Estimating Allowance for Doubtful Accounts Kirchhoff Industries has a past history of uncollectible accounts, as follows. Age Class Percent Uncollectible Not past due 2% 1-30 days past due 4 31-60 days past due 18 61-90 days past due 40 Over 90 days past due 75 Estimate the allowance for doubtful accounts, based on the aging of receivables schedule below. Kirchhoff Industries Estimate the Allowance for Doubtful Accounts Balance Not Past Due Days Past Due 1-30 Days Past Due 31-60 Days Past Due 61-90 Days Past Due Over 90 Subtotals $1,050,000 $600,000 $220,000 $115,000 $85,000 $30,000 Conover Industries 30,000 30,000 Keystone Company 18,000 18,000 Moxie Creek Inc. 9,000 9,000 Rainbow Company 26,400 26,400 Swanson Company 46,600 46,600 Total receivables 1,180,000 626,400 266,600 124,000 103,000 60,000 Percentage uncollectible 2% 4% 18% 40% 75% Allowance for doubtful accounts
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.
Estimating Allowance for Doubtful Accounts
Kirchhoff Industries has a past history of uncollectible accounts, as follows.
Age Class |
Percent Uncollectible |
|
| Not past due | 2% | |
| 1-30 days past due | 4 | |
| 31-60 days past due | 18 | |
| 61-90 days past due | 40 | |
| Over 90 days past due | 75 |
Estimate the allowance for doubtful accounts, based on the aging of receivables schedule below.
| Kirchhoff Industries | ||||||
| Estimate the Allowance for Doubtful Accounts | ||||||
| Balance | Not Past Due |
Days Past Due 1-30 |
Days Past Due 31-60 |
Days Past Due 61-90 |
Days Past Due Over 90 |
|
| Subtotals | $1,050,000 | $600,000 | $220,000 | $115,000 | $85,000 | $30,000 |
| Conover Industries | 30,000 | 30,000 | ||||
| Keystone Company | 18,000 | 18,000 | ||||
| Moxie Creek Inc. | 9,000 | 9,000 | ||||
| Rainbow Company | 26,400 | 26,400 | ||||
| Swanson Company | 46,600 | 46,600 | ||||
| Total receivables | 1,180,000 | 626,400 | 266,600 | 124,000 | 103,000 | 60,000 |
| Percentage uncollectible | 2% | 4% | 18% | 40% | 75% | |
| Allowance for doubtful accounts |
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