In: Accounting
Crow Company’s Accounts Receivable balance is $120,000 as of December 31, 2019. At the end of the period 4% of the accounts receivable is estimated to be uncollectible. Company uses percentage of receivables method for its doubtful receivables.
REQUIRED: Compute the uncollectible accounts expense (bad debts expense) for 2019. Record the necessary adjusting entry (journal entry) as of December 31, 2019 for uncollectible receivables and show their effects on the financial statements (Income Statement for 2019 and Balance sheet as of December 31, 2019).
a)The uncollectible accounts expense (bad debts expense) for 2019 is calculated as follows:
Given that:
Accounts Receivable balance = $120,000
Percentage estimated as uncolletible = 4%
Uncollectible accounts expense (bad debts expense) = Accounts Receivable balance * Percentage estimated as uncolletible
Uncollectible accounts expense (bad debts expense) = $120,000 * 4%
= $4,800
So,The uncollectible accounts expense (bad debts expense) for 2019 is $4,800
b)Adjusting entry (journal entry) as of December 31, 2019 for uncollectible receivables is as follows:
Date | Account and Explanation | Debit($) | Credit($) |
---|---|---|---|
Dec. 31, 2019 | Bad Debt Expenses | 4,800 | |
Allowance for Doubtful account | 4,800 | ||
(Recorded the bad debt expenses) |
c) The effects on the financial statements (Income Statement for 2019 and Balance sheet as of December 31, 2019) is shown as below:
Income Statement for the year ended December 31, 2019
Particular | $ | Particular | $ |
---|---|---|---|
Operating Expenses: | |||
Bad Debt Expenses | 4,800 | ||
Balance sheet as of December 31, 2019
Laibility | $ | Assets | $ | $ |
---|---|---|---|---|
Account Receivable | 120,000 | |||
Less:Allowance for Doubtful Account | (4,800) | |||
Account Receivable,(Net ) | 115,200 |