Question

Sheridan Company had a 1/1/20 balance in the Allowance for Doubtful Accounts of $21000. During 2020, it wrote off $15210 of accounts and collected $4520 on accounts previously written off. The balance in Accounts Receivable was $440000 at 1/1 and $500000 at 12/31. At 12/31/20, Sheridan estimates that 6% of accounts receivable will prove to be uncollectible. What should Sheridan report as its Allowance for Doubtful Accounts at 12/31/20?

Answer 1

$30,000

Step-by-step explanation:

When a company makes sales on account, debit accounts receivable and credit sales. Based on assessment, some or all of the receivables may be uncollectible.

To account for this, debit bad debit expense and credit allowance for doubtful debt. Should the debt become uncollectible (i.e go bad), debit allowance for doubtful debt and credit accounts receivable.

Where a debt that had previously been determined to have gone bad gets settled, debit cash and credit bad debt expense.

Given that during 2020, it wrote off $15210 of accounts and collected $4520 on accounts previously written off

Balance in receivables = $21000 - $15210 - $4250

= $1,540

If the balance in Accounts Receivable was $500000 at 12/31. At 12/31/20, Sheridan estimates that 6% of accounts receivable will prove to be uncollectible, then the allowance for bad debt for the year

= 6% * $500000

= $30,000

Answer 2

$30,000

Step-by-step explanation:

$500,000*6%=$30,000

The allowance for doubtful accounts will be $30,000 as at 12/31/20.

Please note that we have been asked for the clsoing balance not for bad debt expense for the year.