Sam’s Auto Parts uses the aging method to estimate bad debt expense. At the end of 2018, the company had an accounts receivable balance of $102,100 and a credit balance in the allowance for doubtful accounts of $9,180 (before year end adjustments). The company had the following analysis of accounts receivable at the end of 2018: Accounts Receivable Age Amount Proportion Expected to Default Current $ 60,000 2% 1-15 days past due 21, 500 3% 16-45 days past due 3, 700 7% 46-90 days past due 3, 600 15% Over 90 days past due 13, 300 25% $ 102,100 Sam’s Auto Parts has a December 31 year end. a) Calculate the desired ending balance of the allowance for doubtful accounts at the end of the year. b) What is the bad debt expense for the year?
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.
Sam’s Auto Parts uses the aging method to estimate
Accounts Receivable Age Amount Proportion Expected to Default
Current $ 60,000 2%
1-15 days past due 21, 500 3%
16-45 days past due 3, 700 7%
46-90 days past due 3, 600 15%
Over 90 days past due 13, 300 25%
$ 102,100
Sam’s Auto Parts has a December 31 year end.
a) Calculate the desired ending balance of the allowance for doubtful accounts at the end of the year.
b) What is the bad debt expense for the year?
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