[wishiwasaCPA]

So I thought I understood uncollectible accounts, turns out I don’t. Question reads:

On March 31, Vale Co. had an unadjusted credit balance of $1,000 in its allowance for uncollectible accounts. An analysis of Vale’s trade accounts receivable at that date revealed the following:

0-30 days = 60,000, 5% estimated uncollectible

31-60 days = 4,000, 10% uncollectible

Over 60 days = 2,000, $1,400 uncollectible

Answer: $4,800

So, if there is an existing unadjusted credit balance of $1,000, wouldn’t that have been a debit to bad debt expense, and a credit to allowance for uncollectible accounts? Then, when I compute the above items I get $4,800 which is the estimate for uncollectible so would be a debit to bad debt expense, credit to allowance for doubtful accounts of $4,800. Wouldn’t that make the total allowance $5,800? My answer says that it is $4,800 and that the bad debt expense for the year is $3,800. What am I missing here? Are my journal entries wrong? I thought bad debt expense and the allowance would match up like depreciation and accumulated depreciation?

[tpenick]

The $4,800 is the amount that needs to be the ending balance. Since there is already $1,000 in there, the credit would only have to be $3,800.

[tpenick]

The $4,800 is the amount that needs to be the ending balance. Since there is already $1,000 in there, the credit would only have to be $3,800.

[Anonymous]

Remember when you are doing a bad debt problem that if they use the Balance Sheet account, A/R, then you adjust the Balance.

[Anonymous]

Remember when you are doing a bad debt problem that if they use the Balance Sheet account, A/R, then you adjust the Balance.

[Anonymous]

Look at it like a T-account

Allowance for Doubtful Accounts

| 1,000 <

---

Given

(?) | (?) <

---

Bad debt expense for the year; the amount that you must compute

__________________________

| 4,800 <—-Balance, which is calculated with the percentages above

Basically, they're asking you for the plug. If they said “credit balance is 1,000, bad debt expense for the year is 4,800, what is the balance?”, then you would come to 5,800 like you did above. However, they are asking for the expense to bring the 1,000 to 4,800, the amount you calculated.

Hope that helps!

[Anonymous]

Look at it like a T-account

Allowance for Doubtful Accounts

| 1,000 <

---

Given

(?) | (?) <

---

Bad debt expense for the year; the amount that you must compute

__________________________

| 4,800 <—-Balance, which is calculated with the percentages above

Basically, they're asking you for the plug. If they said “credit balance is 1,000, bad debt expense for the year is 4,800, what is the balance?”, then you would come to 5,800 like you did above. However, they are asking for the expense to bring the 1,000 to 4,800, the amount you calculated.

Hope that helps!

[mla1169]

Don't forget you're only booking estimates. It won't touch bad debt expense until the amounts are actually written off.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[mla1169]

Don't forget you're only booking estimates. It won't touch bad debt expense until the amounts are actually written off.

FAR- 77
AUD -49, 71, 84
REG -56,75!
BEC -75

Massachusetts CPA (non reporting) since 3/12.

[Whopper Warrior]

Bad Debt Expense 3,800

Allowance for Dobtful Accounts 3,800

Depending on the Question:

What is the expense for the year? 3,800

What is the ending allowance? 4,800 (1,000 + 3,800)

You are assuming the allowance was set up this year? Lets look at Y1

Bad Debt Expense 1,000

Allowance for Dobtful Accounts 1,000

Here we see they do “match”, but do they really? With no accounts being written off in Y1 it is almost as if we took to much expense in Y1. Thus we get, I guess you could say a benefit, of reduced expenses in Y2 because of the carry over balance. Now what if in Y2, allowance for dontful accounts had a Debit balance (what does that mean)?

ALL 4 parts passed summer 13
Ethics October 13
Experience (waiting)

Becker Only

[Whopper Warrior]

Bad Debt Expense 3,800

Allowance for Dobtful Accounts 3,800

Depending on the Question:

What is the expense for the year? 3,800

What is the ending allowance? 4,800 (1,000 + 3,800)

You are assuming the allowance was set up this year? Lets look at Y1

Bad Debt Expense 1,000

Allowance for Dobtful Accounts 1,000

Here we see they do “match”, but do they really? With no accounts being written off in Y1 it is almost as if we took to much expense in Y1. Thus we get, I guess you could say a benefit, of reduced expenses in Y2 because of the carry over balance. Now what if in Y2, allowance for dontful accounts had a Debit balance (what does that mean)?

ALL 4 parts passed summer 13
Ethics October 13
Experience (waiting)

Becker Only

[Author]

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