Question

Orr Co. prepared an aging of its accounts receivable at December 31 and determined that the net realizable value of the receivables was $250,000. Additional information is available as follows: Allowance for uncollectible accounts at 1/1 -- credit balance $ 28,000 Accounts written off as uncollectible during the year 23,000 Accounts receivable at 12/31 270,000 Uncollectible accounts recovered during the year 5,000 For the year ended December 31, Orr’s uncollectible accounts expense is

Answer 1

• With all these entries registered the final balance of the Allowance for Uncollectible Accounts  it's as follows:

Answer:

• For the year ended December 31, Orr’s uncollectible accounts expense is

Cr Allowance for Uncollectible Accounts  $ 10.000

Explanation:

• The initial balance of the account was as follows:

Cr Allowance for Uncollectible Accounts  $ 28.000

• Accounts written off as uncollectible during the year 23,000 , it means that part of the balance of the account, "Allowance for Uncollectible Accounts" was used to record the written-off accounts, this movement had a negative impact in the Accounts Receivable.

Dr Allowance for Uncollectible Accounts $ 23.000  

Cr Accounts Receivable                    $ 23.000

• During the year, the company recovered part of the canceled accounts, which means that part of that amount was collected, so it is necessary to reverse the previously registered entry.

Dr Accounts Receivable                                $ 5.000  

Cr Allowance for Uncollectible Accounts  $ 5.000

• With all these entries registered, the final balance of the Allowance for Uncollectible Accounts  is as follows as credit balance:

Cr Allowance for Uncollectible Accounts  $ 10.000

Accounts Uncollectible are those credit that the company give and there are not chances of been collected.

When the customers buy products on credits but then the company can't collect the debt, then it's necessary  to write off the unpaid bill as uncollectible .

One way it's to write-off directly the bad debts at the moment decided that the credit are uncollectible, the total amount  it's reported as bad debt expenses which affect negativly the income statement and the accounts receivable are reduced in the same amount, less assets.

The other way it's to determine a percentage of total amount of accounts receivables as uncollectible, exist many ways to analize the accounts receivable and figure the value of uncollectible.

When the company have the percentage of uncollectible accounts the journal entry required is Bad Expenses (debit) with Allowance for Uncollectible Accounts (credit)

At the moment of the write-off as the expenses were before recognized we only use the Allowance for Uncollectible Accounts (Debit) with Accounts Receivable (Credit), with this we are recognizing the uncollectible credit of the company.