Energy Less, Inc., uses the allowance method for bad debts and adjusts the allowance for uncollectible accounts to a desired amount based on an aging of accounts receivable. At the beginning of 2011, the allowance account had a balance of $(20,000). During 2011, credit sales totaled $500,000 and receivables of $18,000 were written off. The year-end aging indicated that a $21,000 allowance for uncollectible accounts was required.
1. Record the transactions (including the beginning balances) into the accounting equation.
2. What is the bad debts expense for 2011?
3. What information will be disclosed on the balance sheet at year end?
4. What information does this provide someone who is evaluating the firm’s annual performance?