At January 1, 2009, Farley Co. had a credit balance of $520,000 in its allowance for uncollectible accounts. Based on past experience, 2 percent of Farley's credit sales have been uncollectible. During 2009, Farley wrote off $650,000 of accounts receivable. Credit sales for 2009 were $18,000,000. In its December 31, 2009 balance sheet, what amount should Farley report as allowance for uncollectible accounts?

Question

Quizplus · Accepted Answer

The allowance for uncollectible accounts should be calculated as the beginning balance plus the provision for the year minus the write-offs. The provision is 2% of $18,000,000, which is $360,000. The calculation is: $520,000 (beginning balance) + $360,000 (provision) - $650,000 (write-offs) = $230,000.