On december 31, year 1, the loudoun corporation estimated that 3% of its credit sales of $112,500 would be uncollectible. loudoun uses the allowance method of accounting for uncollectible accounts. in february of year 2, one of loudoun's customers failed to pay his $1,050 account and the account was written off. on april 4, year 2, this customer paid loudoun the $1,050. which of the following answers correctly states the effect of the december 31, year 1 adjusting entry for uncollectible accounts on the financial statements of the loudoun corporation?

Initial Balance  

Dr Accounts Receivable  $ 112,500

financial statements of the Loudoun Corporation?  

Dr Bad debt expense                                $ 3,375  

Cr Allowance for Uncollectible Accounts$ 3,375

$1,050 account and the account was written off  

Dr Allowance for Uncollectible Accounts$ 1,050  

Cr Accounts Receivable                  $ 1,050

Dr Accounts Receivable                            $ 1,050  

Cr Allowance for Uncollectible Accounts$ 1,050  

Dr Cash                              $ 1,050  

Cr Accounts Receivable  $ 1,050

Dr Accounts Receivable                            $ 111,450  

Cr Allowance for Uncollectible Accounts$ 3,375

Explanation:

financial statements of the Loudoun Corporation?

This journal entry reflects the 3% of its credit sales of $112,500 that would be uncollectible.

$1,050 account and the account was written off  

This entry it's the written-off of the account declared by the company.

When the client paid the balance due, the written off account it's reverse and then reflect the payment in the cash account.

Then the final balance is reflected in the accounts, the Allowance for Uncollectible Accounts keeps the same amount as the beginning but the Accounts Receivable  change because of the amount collected.

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 reduce 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.

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