Great Outdoors Ltd sells outdoor furniture settings on credit. The accounting records at 30 June 2015 reveal the following. Ignore GST.

Credit sales (for year) $984,000

Credit sales returns and allowances (for year) 83,000

Accounts receivable (balance 30 June 2015) 300,500

Allowance for doubtful debts (credit balance 30 June 2015) 1,500

In the past, the company's yearly bad debts expense had been estimated at 2% of net credit sales revenue. It was decided to compare the current method with an ageing of the accounts receivable method. The following analysis was obtained with respect to the accounts receivable:

Balance % estimated uncollectable

Accounts not yet due $161,600 1/2

Accounts overdue: 1030 days 56,100 2

3160 days 40,500 10

61120 days 23,400 25

121 days and over 18,900 40

TOTAL $300,500

Determine the balance in the allowance for doubtful debts account under both methods.

1.Allowance for doubtful debts (Net credit sales method)

2. Allowance for doubtful debts (Ageing of accounts receivable method)

USING T ACCOUNTS