Question

Example of percentage of accounts receivable method

Answer 1

Solution:

The percentage of receivables method does not directly estimate baddebts expense. This method actually estimates the ending balance of allowance for baddebts accounts. Then These estimated baddebts expense is calculated as shown below

Baddebts expense = Ending balance for allowance of baddets a/c

Less   Cr balance in Allowance for badbets or

Add Dr balance in allowance for baddebts

Journal entry for baddebts expense is

Bad debts expense a/c Dr	x
To allowance for doubtful debts a/c		x

Problem example

Calculate the bad debts expense and pass the adjusting journal entry to record the baddebts expense

on year end 2019, Company ABC estimated that $7,000 of its accounts receivable will remain uncollectible. The Current balance in allowance for baddebts is $2,000cr

Solution:

Badddebts expense = $7,000 - $2,000 = $5,000

Adjustment Journal entry

Bad debts expense a/c Dr	$5,000
To allowance for doubtful debts		$5,000

Ending allowance for bad debts = $5,000 +$2,00 = $7,000