On January 1, 2014, the Accounts Receivable and the Allowance for Uncollectible Accounts for Darius Company carried balances of $20,000 and $550 respectively.During the year, the company reported $70,000 of credit sales.There were $400 of receivables written off as uncollectible in 2014.Cash collections of receivables amounted to $74,700.The company estimates that it will be unable to collect 5% of the year-end accounts receivable balance.
The amount of bad debts expense recognized in the 2014 income statement will be:

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Quizplus · Accepted Answer

The ending accounts receivable balance is $14,900 ($20,000 + $70,000 - $74,700 - $400). The estimated uncollectible amount is 5% of $14,900, which is $745. The allowance account needs to be adjusted to this amount. The beginning allowance was $550, and $400 was written off, leaving $150. Therefore, the bad debts expense is $745 - $150 = $595.