Allowance Method Review - The Allowance Method (GAAP) V. Direct Write-Off Method

Nathans Corp., manufactures hot dogs, reports the following information before adjusting for 2010 Bad Debt Expense.

Dr. Cr.

Accounts Receivable $ 100,000

Allowance for Uncollectibles.... $ 10,000

Sales Revenue (all on credit). $500,000

Sales Returns and Allowances.. $100,000

Sales Discounts $ 50,000

Valuation of Accounts Receivable Allowance Method for Uncollectible Accounts

Recording Bad Debts- Bases Used for Allowance Method

- Please write the correct journal entry to record Bad Debt expense assuming Nathans Corp. estimates bad debt expense at 3% of Net Sales.

- Please indicate the ending balance in Allowance for Uncollectibles.

Note: Under the Percentage of Sales Method, a journal entry to record Bad Debt Expense and Allowance for Uncollectibles is recorded with each credit sale.

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Valuation of Accounts Receivable Allowance Method for Uncollectible Accounts

Recording Bad Debts - Bases Used for Allowance Method

Which is the correct journal entry to record Bad Debt expense assuming Nathans Corp. estimates bad debt expense at 12% of Accounts Receivable.

Note: Percentage of Accounts Receivable at Year-end Method: (Uses the Balance Sheet )

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Allowance for Uncollectibles at year-end = % of year-end Accounts Receivables

Valuation of Accounts Receivable Allowance Method for Uncollectible Accounts

Recording Bad Debts Aging of Receivables Method

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HEB Inc.

Aging Schedule

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Classification by Balances in Estimated % Estimated

By Due Date Each Category Uncollectible Uncollectible Acct.

Current $10,000 .02 $ 200

31-61 days $ 7,000 .04 $ 280

61-90 days $ 5,000 .15 $ 750

Over 90 days $ 4,000 .25 $1000

$26,000 $2,230

Note: Aging of Receivables Method (Uses the Balance Sheet)