Asked by Vaden Mangler on Apr 25, 2024
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A company has $80,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts.Experience suggests that 6% of outstanding receivables are uncollectible.The current credit balance (before adjustments)in the allowance for doubtful accounts is $1,200.The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for $4,800.
Allowance Method
An accounting technique used to estimate and account for doubtful debts, reflecting potential future losses on receivables.
Outstanding Accounts Receivable
Refers to the money owed to a company for goods or services that have been provided but not yet paid for.
Allowance for Doubtful Accounts
An estimation of the amount of accounts receivable that may not be collectible, resulting in a contra asset account to adjust the value of total accounts receivable.
- Comprehend and elucidate the principles of allowance and direct write-off methods utilized in accounting for uncollectible accounts.
- Apply the sales percentage calculation and the aging procedure for accounts receivable to forecast uncollectible receivables.
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Learning Objectives
- Comprehend and elucidate the principles of allowance and direct write-off methods utilized in accounting for uncollectible accounts.
- Apply the sales percentage calculation and the aging procedure for accounts receivable to forecast uncollectible receivables.
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