A company has $314,000 in credit sales. The company uses the allowance method to account for uncollectible accounts. The allowance for doubtful accounts now has a $1,890 debit balance. If the company estimates that $8,160 of accounts will be uncollectible based on an aging of accounts receivable, what will be the amount of the journal entry to record estimated uncollectible accounts?
What's the answer
100000
To determine the amount of the journal entry to record estimated uncollectible accounts, you need to consider the current balance in the allowance for doubtful accounts and the estimated uncollectible accounts based on an aging of accounts receivable.
Step 1: Calculate the desired balance in the allowance for doubtful accounts.
The desired balance in the allowance for doubtful accounts is typically based on a percentage of the accounts receivable balance. In this case, the estimated uncollectible accounts are $8,160, so you need to determine the percentage of the credit sales that should be used to represent this amount.
To calculate the desired balance, you can use the following formula:
Desired balance = Credit sales * Percentage of uncollectible accounts
Given:
Credit sales = $314,000
Estimated uncollectible accounts = $8,160
Assuming that a certain percentage of credit sales is estimated to be uncollectible, you can rearrange the formula to solve for the percentage of uncollectible accounts:
Percentage of uncollectible accounts = Estimated uncollectible accounts / Credit sales
In this case:
Percentage of uncollectible accounts = $8,160 / $314,000
Step 2: Calculate the desired balance in the allowance for doubtful accounts.
Now that you have the percentage of uncollectible accounts, you can calculate the desired balance in the allowance for doubtful accounts:
Desired balance = Credit sales * Percentage of uncollectible accounts
Desired balance = $314,000 * (Estimated uncollectible accounts / Credit sales)
Step 3: Calculate the adjustment needed.
The adjustment needed is the difference between the desired balance in the allowance for doubtful accounts and the current balance.
Adjustment needed = Desired balance - Current balance
Adjustment needed = Desired balance - $1,890 (current debit balance in the allowance for doubtful accounts)
The amount of the journal entry to record estimated uncollectible accounts will be the adjustment needed calculated in step 3. This adjustment will be recorded as a credit entry to offset the existing debit balance in the allowance for doubtful accounts.
Please note that the specific calculations may vary depending on the company's specific accounting policies and methods for estimating uncollectible accounts. It is always advisable to consult the relevant accounting standards and company policies for accurate calculations.