Starlight, a Broadway media firm, uses the balance sheet approach to estimate uncollectible accounts expense. At year-end an aging of the accounts receivable produced the following classification: Not yet due.................................................................................................... $500,000 1-30 days past due......................................................................................... 110,000 31-60 days past due....................................................................................... 50,000 61-90 days past due....................................................................................... 30,000 Over 90 days past due................................................................................... 60,000 Total......................................................................................................... $750,000 On the basis of past experience, the company estimated the percentages probably uncollectible for the above five age groups to be as follows: Group 1, 1%; Group 2, 3%; Group 3, 10%; Group 4, 20%; and Group 5, 50%. The Allowance for Doubtful Accounts before adjustments at December 31 showed a credit balance of $4,700. What is the estimated amount of uncollectible accounts based on the above classification by age groups and the amount of the adjustment needed to bring the Allowance for Doubtful Accounts to the proper amount?
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.
Starlight, a Broadway media firm, uses the
Not yet due.................................................................................................... $500,000
1-30 days past due......................................................................................... 110,000
31-60 days past due....................................................................................... 50,000
61-90 days past due....................................................................................... 30,000
Over 90 days past due................................................................................... 60,000
Total......................................................................................................... $750,000
On the basis of past experience, the company estimated the percentages probably uncollectible for the above five age groups to be as follows: Group 1, 1%; Group 2, 3%; Group 3, 10%; Group 4, 20%; and Group 5, 50%. The Allowance for Doubtful Accounts before adjustments at December 31 showed a credit balance of $4,700.
What is the estimated amount of uncollectible accounts based on the above classification by age groups and the amount of the adjustment needed to bring the Allowance for Doubtful Accounts to the proper amount?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
