Dapper Hat Makers Company sells merchandise on credit. During the fiscal year ended July 31, the company had net sales of $2,300,000. At the end of the year, it had Accounts Receivable of $600,000 and a debit balance in Allowance for Uncollectible Accounts of $3,400. In the past, approximately 1.4 percent of net sales have proved to be uncollectible. Also, an aging analysis of accounts receivable reveals that $30,000 of the receivables appears to be uncollectible.
Prepare journal entries to record uncollectible accounts expense using
(a) The percentage of net sales method
(b) The accounts receivable aging method.
What is the resulting balance of Allowance for Uncollectible Accounts under each method? How would your answers under each method change if Allowance for Uncollectible Accounts had a credit balance of $3,400 instead of a debit balance? Why do the methods result in different balances?