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(Continuation)
To illustrate:
Let us assume that ABC Company has an outstanding accounts receivable of 60,000. Based on past experience, it is
estimated that 2% is doubtful of collection at the end of the accounting period on December 31, 2020.
Journal Entry:
December 31 Uncollectible Accounts Expense 1, 200
Estimated Uncollectible Account 1,200
To record provision for uncollectible accounts which is computed of 2% of 60,000.
The amount difference between Accounts Receivable of 60,000 and the Estimated Uncollectible Account of 1,200 is 58,800
which is called Estimated Realizable Value.
In the latter date it was proven that 300 of the 1,200 Estimated Uncollectible Account could no longer be collected, a subsequent
journal entry is prepared as follows:
When supplies are purchased, these are debited to an asset account, called Supplies Inventory. At the end of the month,
the portion of what we originally recorded as Asset will turn into an Expense. Based on physical counting supplies on
hand, we will determine the actual cost of supplies inventory.
Example:
If we purchase supplies worth 20,000 and at the end of the month 8,000 worth of supplies were on hand, meaning the
12,000 worth of supplies should have been used.
1. UVM Corporation has an outstanding accounts receivable of 35,000. Based on past experience, it is estimated that 1% is doubtful
of collection at the end of the accounting period on December 31, 2020.
2. Purchase supplies amounting 8,000 of which 4,000 worth of supplies were on hand.