Question

As of January 1, 2021, Chelsea Co. had a balance of $520,000 in its allowance for uncollectible accounts. Based on experience, 2% of Chelsea's credit sales have been uncollectible. During 2021, Chelsea wrote off $650,000 of accounts receivable. Credit sales for 2021 were $18,000,000. In its December 31, 2021 balance sheet, what amount should Chelsea report as allowance for uncollectible accounts?

Answer 1

Chelsea should report $230,000 as allowance for noncollectable accounts

Step-by-step explanation:

Allowance in beginning = $520,000

Allowance needed for 2021 sales = $18,000,000 x 2% = $360,000

Total allowance balance before write off = $880,000

Less: write off = $ 650,000

Allowance balance at year end = $520,000 + $360,000 - $650,000

= $230,000