Company X uses the accounts receivable ageing approach to estimate bad debt expense. Please calculate the December 31, 2018 allowance for doubtful accounts using the following information: The estimated loss rate for uncollectibility for each category is as follows: Up to 30 days due 3%, Up to 31 to 60 days due 6% and Over 60 days due 10%. Before the December 31, 2018 calculations were made the allowance for doubtful accounts had a $500 Debit balance in it. The balances in the December 31, 2018 accounts receivable ageing schedule are as follows:
Up to 30 days due $100,000
Up to 31 to 60 days due $40,000
Over 60 days due $20,000

Company X

Calculation of the December 31, 2018 Allowance for Doubtful Accounts:

Accounts Receivable balances           Allowance for Doubtful Accounts

Up to 30 days due $100,000                $3,000 (100,000 x 3%)

Up to 31 to 60 days due $40,000        $2,400 (40,000 x 6%)

Over 60 days due $20,000                $2,000 (20,000 x 10%)

Total Allowance for Doubtful Accounts $7,400

Explanation:

The 2018 Uncollectible Expenses will be $7,900 ($7,400 + 500).

Using the ageing method, each class of account receivable balance is applied the estimated rate of uncollectible.  Then, these are summed to give the amount estimated as the Allowance for Doubtful Accounts for the year.  The resulting figure is compared with the balance in the Allowance for Doubtful Accounts to determine the amount of  the Uncollectible Expenses which is taken to the income summary for the period.

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