Final answer:
The ending balance for the allowance for bad debts is calculated by taking 10% of the year-end accounts receivable balance of $26,200, will result in a balance of $2,620.
Step-by-step explanation:
Pincus Associates utilizes the allowance method for managing bad debts, which is a common accounting approach for anticipating and adjusting for unpaid invoices or services. In the allowance method, businesses anticipate a percentage of their receivables to be uncollectible and record this prediction as an expense, creating an allowance for doubtful accounts which is a contra-asset account that offsets the accounts receivable balance on the balance sheet. In 2024, Pincus Associates recognized $233,000 of services on account, received $197,400 in cash collections, and wrote off $9,400 as uncollectible accounts.
To calculate the ending balance of the allowance for uncollectible accounts, we start with the fact that the beginning balance was $0. The accounts receivable at the end of the year can be calculated by subtracting the cash collections and write offs from services on account, which equals $233,000 - $197,400 - $9,400 = $26,200. We then apply the estimated uncollectible percentage of 10% to the final accounts receivable balance (10% of $26,200), which gives a year-end balance for the allowance for bad debts of $2,620.
*complete question
Pincus Associates uses the allowance method to account for bad debts. 2024 was the first year of operations for Pincus, so it had a $0 opening balance in its allowance for uncollectible accounts. During 2024, Pincus provided a total of $233,000 of services on account. In 2024, the company wrote off uncollectible accounts of $9,400. By the end of 2024, cash collections on accounts receivable totaled $197,400. Pincus estimates that 10% of the accounts receivable balance at 12/31/2024 will prove uncollectible. What is the resulting balance?