In: Accounting
The following data is taken from the books and records of Cink Co., which estimated its allowance for uncollectible accounts using the year-end aging of accounts receivable.
Allowance for uncollectible acounts, 1/1/20 | $ 145,000 |
Uncollectible accounts written off, 11/30/20 | 92,500 |
Estimated uncollectible accounts per aging, 12/31/20 | 119,000 |
After the year-end adjustment, bad debt expense for 2020 should be $____________.
ANSWER: Bad debt expense for the year 2020 will be $ 66,500
Explanation:
There is a beginning credit balance of $145,000 in the allowance for uncollectible accounts. When uncollectible accounts are written off to the extent of $92,500 during the year, the journal entry would be passed by debiting allowance for uncollectible accounts and crediting accounts receivable. This will reduce the balance in the allowance for uncollectible accounts by $92,500. Hence the balance of allowance for uncollectible accounts will become $52,500 [ 145,000 - 92,500]. However, as per the ageing, the estimated ending uncollectible amount is $119,000. So in order to arrive at this balance, an additional bad debt expense will be accounted to the extend of $66,500 [119,000 - 52,500] by debiting bad debt expense a/c and crediting allowance for uncollectible accounts a/c. Hence the bad debt expense for the year 2020 will be $66,500. The ledger of Allowance for uncollectible accounts can be drawn as follows:
Particulars | Amount in $ | Particulars | Amount in $ |
Accounts Receivable | 92,500 | Beginning Balance | 145,000 |
Bad debt expense | 66,500 | ||
Ending Balance | 119,000 | ||
211,500 | 211,500 |