Performance Bike Co. Estimation of Uncollectible Accounts December 31 Age Interval Balance Estimated Uncollectible Accounts Percent Estimated Uncollectible Accounts Amount Not past due $870,000 3/4% $ 1-30 days past due 95,700 4 31-60 days past due 43,500 7 61-90 days past due 31,300 16 91-180 days past due 22,600 41 Over 180 days past due 16,500 65 Total $1,079,600 $
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 Doubtful Accounts
Performance Bike Co. is a wholesaler of motorcycle supplies. An aging of the company's accounts receivable on December 31 and a historical analysis of the percentage of uncollectible accounts in each age category are as follows:
Estimate what the proper balance of the allowance for doubtful accounts should be as of December 31.
| Performance Bike Co. | |||
| Estimation of Uncollectible Accounts | |||
| December 31 | |||
| Age Interval | Balance | Estimated Uncollectible Accounts Percent | Estimated Uncollectible Accounts Amount |
| Not past due | $870,000 | 3/4% | $ |
| 1-30 days past due | 95,700 | 4 | |
| 31-60 days past due | 43,500 | 7 | |
| 61-90 days past due | 31,300 | 16 | |
| 91-180 days past due | 22,600 | 41 | |
| Over 180 days past due | 16,500 | 65 | |
| Total | $1,079,600 | $ |
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