Answer:
What is the ending balance of Allowance for Doubtful Accounts at December 31, 2016,
Cr Allowance for Uncollectible Accounts $ 1,600
Explanation:
Dr Accounts Receivable $ 160,000
- Collection of accounts receivables 147,500
Dr CASH $ 147,500
Cr Accounts Receivable $ 147,500
- Uncollectible accounts charged off during the year 700
Dr Allowance for Uncollectible Accounts $ 700
Cr Accounts Receivable $ 700
- 1 percent of its sales on account will not be collected
Dr Bad Debt Expense $ 2,300
Cr Allowance for Uncollectible Accounts $ 2,300
Dr Accounts Receivable $ 11,800
Cr Allowance for Uncollectible Accounts $ 1,600
If the company applies the allowance method, it means that the account Allowance for Uncollectible Accounts must show as balance the % of SALES as CREDIT.
Because the company has a debit balance in that account it's necessary to register an entry that compensate the DEBIT value and reflect A CREDIT value.
Bad accounts are those credits granted by the company and there is no possibility of being charged.
"When customers buy products on credits but the company cannot collect the debt, then it's necessary to cancel the unpaid invoice as uncollectible."
One way is to directly cancel bad debts at the time it was decided that the credit is bad, the total amount reported as bad debt expenses negatively affect the income statement and the accounts receivable are reduced by the same amount, less assets
The other way is to determine a percentage of the total amount of accounts receivable as bad debts, there are many ways to analyze accounts receivable and calculate the value of bad debts.
When the company has the percentage of uncollectible accounts, the required journal entry is Bad Expenses (debit) with Reserve for Bad Accounts (credit)
At the time of cancellation, since the expenses were recognized before, we only use the Allowance for Uncollectible Accounts (Debit) with accounts receivable (credit), with this we are recognizing the bad credit of the company.
