John is working on his company's financial statements for the month of June, and he would like to account for any potential accounts receivable that he is not likely to collect. John's company typically allows his clients up to 60 days to make payments, so he opts to use an accrual-based method to account for those uncollectible accounts. During June, the company sold $60,000, 75% of which was on credit. In John's experience, 15% of sales made on credit become uncollectible. What amount would John record in his monthly journal entry to account for uncollectible credit sales, and which accounts would he use?

Question

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The first step to solving this question is to determine what Sales should be subjected the uncollectible percentage estimate. John's Sales for June are $60,000, and 75% of those sales are on credit. That results in a total of $45,000 of Credit Sales. John anticipates that 15% of this value will become uncollectible, so that would be an overall total of $6,750. Since John allows 60 days to make a payment, there could be a delay in learning what accounts will become uncollectible, so he will use an Allowance for Doubtful Accounts for credit. Choice D is the only answer to have both the correct total of uncollectible accounts and the proper debit and credit accounts.

John Is Working on His Company's Financial Statements for the Month