Question

The accounts receivable balance for Renue Spa at December 31, 2017, was $86,000. Also on that date, the balance in the Allowance for Doubtful Accounts was $2,700. During 2018, $2,800 of accounts receivable were written off as uncollectible. In addition, Renue unexpectedly collected $190 of receivables that had been written off in a previous accounting period. Services provided on account during 2018 were $218,000, and cash collections from receivables were $220,000. Uncollectible accounts expense was estimated to be 1 percent of the sales on account for the period.

Required
Organize the information in accounts under an accounting equation.
(1) Balance of Allowance for Doubtful Accounts at December 31, 2018.
(2) Balance of Accounts Receivable at December 31, 2018.
(3) Net realizable value of Accounts Receivable at December 31, 2018.

Answer 1

1. The balance of Allowance for Doubtful Accounts at December 31, 2018, is $2,890.

2. The balance of Accounts Receivable at December 31, 2018, is $81,390.

3. The Net Realizable Value of Accounts Receivable at December 31, 2018, is $78,500.

Step-by-step explanation:

In the accounting equation, the Allowance for Doubtful Accounts represents the estimated amount of uncollectible accounts within Accounts Receivable. The beginning balance in Allowance for Doubtful Accounts was $2,700. Throughout 2018, $2,800 of accounts receivable were written off, and $190 was unexpectedly collected on previously written-off accounts. The estimated uncollectible accounts expense, based on 1% of $218,000 in sales on account, is $2,180. After considering these transactions, the ending balance in Allowance for Doubtful Accounts at December 31, 2018, is $2,890.

The balance of Accounts Receivable at the beginning of the period (December 31, 2017) was $86,000. Services provided on account during 2018 amounted to $218,000, while $2,800 of accounts receivable were written off as uncollectible. Cash collections from receivables were $220,000, and an additional $190 was collected on previously written-off accounts. After considering these transactions, the ending balance in Accounts Receivable at December 31, 2018, is $81,390.

The Net Realizable Value of Accounts Receivable is calculated by subtracting the Allowance for Doubtful Accounts from the Accounts Receivable balance. In this case, it is $81,390 (Accounts Receivable) - $2,890 (Allowance for Doubtful Accounts) = $78,500. This represents the estimated amount the company expects to collect from its accounts receivable after accounting for potential uncollectible amounts.