Question

On January 1, 2011 Grace Company had an $13,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During 2011, Grace provided $55,000 of service on account. The company collected $48,100 cash from account receivable. Uncollectible accounts are estimated to be 12% of sales on accountOn January 1, 2011 Grace Company had an $13,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During 2011, Grace provided $55,000 of service on account. The company collected $48,100 cash from account receivable. Uncollectible accounts are estimated to be 12% of sales on account

The amount of uncollectible accounts expense recognized on the 2011 income statement is:

$6,360.

$6,600.

$550.

$1,560.

Answer 1

Answer:

The amount of uncollectible accounts expense recognized on the 2011 income statement is:

$6,600.

Explanation:

As the amount of uncollectible accounts are expressed as percentage of the total sales, then the amount is $6,600

• Initial Balance  

Dr Accounts Receivable  $ 13.000  

During 2011, Grace provided $55,000 of service on account  

Dr Accounts Receivable  $ 55.000  

Cr SALES $ 55.000  

• The company collected $48,100 cash from account receivable.  

Dr CASH $ 48.100  

Cr Accounts Receivable  $ 48.100  

• Uncollectible accounts are estimated to be 12% of sales on account  

Dr Bad Debt Expense $ 6.600  

Cr Allowance for Uncollectible Accounts $ 6.600  

If the company applies the allowance method, it means that the account Allowance for Uncollectible Accounts must show as balance the % of accounts receivables as CREDIT.

Bad accounts are those credits granted by the company and there is no possibility of being charged.

"When customers buy products on credits but the company cannot collect the debt, then it's necessary  to cancel the unpaid invoice as uncollectible."

One way is to directly cancel bad debts at the time it was decided that the credit is bad, the total amount reported as bad debt expenses negatively affect the income statement and the accounts receivable are reduced by the same amount, less assets

The other way is to determine a percentage of the total amount of accounts receivable as bad debts, there are many ways to analyze accounts receivable and calculate the value of bad debts.

When the company has the percentage of uncollectible accounts, the required journal entry is Bad Expenses (debit) with Reserve for Bad Accounts (credit)

At the time of cancellation, since the expenses were recognized before, we only use the Allowance for Uncollectible Accounts (Debit)  with accounts receivable (credit), with this we are recognizing the bad credit of the company.