Question

A business has the following balances at the beginning of the year:

Accounts receivable: 272500
Allowance for doubtful accounts: -40875
The following summary transactions occurred during the year.
Sales for the year, 100% on credit: 525000
Cash collected on accounts receivable for the year: 518375
Write-offs of uncollectable accounts receivable: 32700
Received a cheque from a customer whose account was previously written off: 3270
Overall rate used to estimate the allowance for doubtful accounts at year end: 16%
Using the information above, answer the following questions. Enter the digits only - no dollar signs, commas, or decimal points. IMPORTANT - enter your answer to the second question (the balance in the allowance) as a NEGATIVE number, with a minus sign (-) in front of the digits.
What is the balance in the accounts receivable account at year end?
What is the balance in the allowance for doubtful accounts at year end?

Answer 1

The balance in the accounts receivable account at year end is -$26,075. The balance in the allowance for doubtful accounts at year end is -$4,172.

Step-by-step explanation:

To determine the balance in the accounts receivable account at year end, we need to calculate the net credit sales. Net credit sales can be calculated by subtracting the write-offs of uncollectable accounts receivable from the sales for the year. So, net credit sales = Sales for the year - Write-offs of uncollectable accounts receivable = $525,000 - $32,700 = $492,300.

The balance in the accounts receivable account at year end can be calculated by subtracting the cash collected on accounts receivable for the year from the net credit sales. So, balance in the accounts receivable account at year end = Net credit sales - Cash collected on accounts receivable for the year = $492,300 - $518,375 = -$26,075.

The balance in the allowance for doubtful accounts at year end can be calculated by multiplying the overall rate used to estimate the allowance for doubtful accounts at year end with the balance in the accounts receivable account at year end. So, balance in the allowance for doubtful accounts at year end = Overall rate * Balance in accounts receivable account at year end = 16% * -$26,075 = -$4,172.