At the beginning of Year 3 Omega Company had a $52,000 balance in its accounts receivable account and a $1,400 balance in the allowance for doubtful accounts. During Year 3 Omega experienced the following events.

(1) Omega earned $220,000 of revenue on the account.
(2) Collected $230,000 cash from accounts receivable.
(3) Wrote-off $1,000 of accounts receivable as uncollectible.

Omega estimates uncollectible accounts to be 4% of receivables.
The December 31, Year 3 ending balance in the allowance for doubtful accounts account (balance after expense recognition) is .

The allowance for doubtful accounts account (balance after expense recognition) is $1,640

Explanation:

Bad debt are the accounts receivable which becomes uncollectible. It has to be recognized in the period of sales were made. Percentage of receivables method is an estimated percentage of bad debts on closing accounts receivable balance. It is adjusted with the existing balance in the allowance for doubtful accounts.

Account Receivable Balance

Beginning Balance                                            $52,000

Add: Revenue Earned on account                   $220,000

Less: Collected cash from receivable              $230,000

Less: Account Receivable Write off                 $1,000      

Ending balance of Account receivable           $41,000  

Allowance for Estimated uncollectible accounts for the year = $41,000 x 4% = $1,640

$1,640

Explanation:

This can simply be calculated as follows:

Ending receivable = Opening receivable + Credit sales – payment received – Uncollectable written off

Ending receivable = $52,000 + $220,000 – $230,000 – $1,000 = $41,000

Ending allowance for doubtful accounts = Ending receivable × Estimated uncollectable percentage

Ending allowance for doubtful accounts = $41,000 × 4% = $1,640.

Therefore, the December 31, Year 3 ending balance in the allowance for doubtful accounts account (balance after expense recognition) is $1,640.

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