Net Accounts Receivable: Aging of Receivables Method quiz #1 Flashcards
Net Accounts Receivable: Aging of Receivables Method quiz #1
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What is the aging of receivables method, and how does it differ from the percentage of sales method in estimating uncollectible accounts?
The aging of receivables method is a balance sheet approach that estimates uncollectible accounts based on the age of accounts receivable. It categorizes receivables by age and applies different uncollectibility percentages to each category. This differs from the percentage of sales method, which is an income statement approach that estimates bad debts as a percentage of sales. How do you calculate the ending balance in the allowance for doubtful accounts using the aging of receivables method?
To calculate the ending balance in the allowance for doubtful accounts, multiply the amount in each age category of accounts receivable by its respective uncollectibility percentage, then sum these amounts. The total is the estimated uncollectible amount, which becomes the ending balance in the allowance for doubtful accounts. What is the journal entry to record bad debt expense when using the aging of receivables method, and how is the bad debt expense amount determined?
The journal entry debits Bad Debt Expense and credits Allowance for Doubtful Accounts for the amount of bad debt expense. The bad debt expense is calculated by adjusting the beginning balance in the allowance for doubtful accounts to reach the required ending balance, as determined by the aging schedule, considering any write-offs. What is the main difference between the aging of receivables method and the percentage of sales method for estimating uncollectible accounts?
The aging of receivables method estimates uncollectibles based on the age of accounts receivable (a balance sheet approach), while the percentage of sales method estimates bad debts as a percentage of sales (an income statement approach). How does an aging schedule help in estimating uncollectible accounts?
An aging schedule categorizes accounts receivable by age and applies different uncollectibility percentages to each category to estimate the total uncollectible amount. What is the formula used to determine the ending balance in the allowance for doubtful accounts?
The formula is: Beginning balance in the allowance + Bad debt expense - Write-offs = Ending balance. How do you calculate the estimated uncollectible amount using the aging of receivables method?
Multiply the amount in each age category by its respective uncollectibility percentage, then sum these amounts to get the total estimated uncollectible amount. If the beginning balance in the allowance for doubtful accounts is $1,000 and the calculated ending balance is $4,200, with no write-offs, what is the bad debt expense?
The bad debt expense is $3,200, calculated as $4,200 (ending balance) minus $1,000 (beginning balance). What is the journal entry to record bad debt expense using the aging of receivables method?
Debit Bad Debt Expense and credit Allowance for Doubtful Accounts for the amount of the calculated bad debt expense. Why does the percentage uncollectible increase as accounts receivable get older in the aging schedule?
Older accounts are less likely to be collected, so higher uncollectibility percentages are applied to older age categories.
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