Allowance Method Example

Sample Problem: 19A was the first year that Ranger Co. was in business. These are the balances in the A/R account from the General Ledger and the Allowance Account before any adjusting entries had been made (the details of the A/R from the subsidiary ledger is also displayed):

12/31/9A

Accounts Receivable 60,000

12/01/9A 12/23/9A

Allen 2,000 6,000 8,000

09/15/9A 12/10/9A

Baker 9,000 10,000 19,000

08/18/9A 11/27/9A 12/15/9A

Cobb 1,000 12,000 15,000 28,000

10/03/9A

Davis 5,000

Allowance For Doubtful Accounts 12/31/A 3,000 1/15/B 1,000 2/15/B 2,500 9/18/B 1,000 Balance 12/31/B before Adj. 500 Sales 12/31/9A 350,000

Schedule of A/R - 12/31/9A Allen 8,000 Baker 19,000 Cobb 28,000 Davis 5,000 Total 60,000 Aging of A/R: Customer Allen Baker Cobb Davis Total Est. % Uncollectible Est. Amt. Uncollect.

Total 8,000 19,000 28,000 5,000 60,000 3,000

Not 1-30 Days 31-60 Days 61-90 Days Due Past Due Past Due Past Due 8,000 10,000 9,000 15,000 12,000 5,000 33,000 12,000 5,000 9,000 3% 5% 7% 10% 990 600 350 900

Record the following selected transactions (post all debits & credits that affect the Allowance for Doubtful Accounts account): 12/31/9A Record the adjusting entry for the uncollectible accounts for the period based on the aging of A/R method of estimation. 01/15/9B Due to missing paperwork, wrote off the 08/18 invoice owed by Cobb. 02/15/9B Davis is bankrupt. They paid 1/2 of the amount they owed & the remainder was written off. 09/18/9B Located the missing paperwork which caused the Cobb write-off. Reinstated the amount written off & recorded the full collection from Cobb. 12/31/9B Based on Aging the A/R at the end of 199B, it was estimated that $4,000 of A/R would be uncollectible. Record the adjusting entry. Date Accounts & Explanation Debit Credit 12/31/A Bad Debts Expense 3,000 Allowance for D/A 3,000 1/15/B

2/15/B

9/18/B

9/18/B

12/31/B

Allowance for D/A A/R - Cobb

1,000

Cash Allowance for D/A A/R - Davis

2,500 2,500

A/R - Cobb Allowance for D/A

1,000

Cash A/R - Cobb

1,000

Bad Debts Expense Allowance for D/A

3,500

1,000

5,000

1,000

1,000

3,500

Over 90 Days Past Due

1,000 1,000 16% 160