Subject: Business / Accounting
Aging Method and Net Sales Method Contrasted
e5A.aCCounting ConneCtion? During 2014, DeLuca Company had net sales of $5,700,000. Most of the sales were on credit. At the end of 2014, the balance of Accounts Receivable was $700,000 and Allowance for Uncollectible Accounts had a debit balance of $24,000. DeLuca’s management uses two methods of estimating uncol- lectible accounts expense: the percentage of net sales method and the accounts receiv- able aging method. The percentage of uncollectible sales is 1.5 percent of net sales, and based on an aging of accounts receivable, the end-of-year uncollectible accounts total
Prepare the year-end adjusting entry to record the uncollectible accounts expense under each method. What will the balance of Allowance for Uncollectible Accounts be after each adjustment? Why are the results different? Which method is likely to be more reliable? Why?