Question

Company A began operations on January 1, 2016. At the end of 2016, the company recorded bad debt expense of $1,500. On July 1, 2017, Company A wrote off as uncollectible $800 of accounts receivable. On August 31, 2017, the company reversed $200 of the write-offs made on July 1st. On December 31, 2017, the company estimated that 3% of its total accounts receivable would be uncollectible. Accounts receivable were $150,000 on December 31, 2017. The journal entry on July 1, 2017 includes a debit to ( ) for ( ) and a credit to ( ) for ( ).

Answer 1

• To calculate the amount of Bad Debt expense for 2017’s adjusting journal entry, following steps need to be followed:

Step #1: Calculate the Adjusted balance of Allowance for Doubtful account that should exist on Dec 31, 2017

Step #2: Calculate the Unadjusted balance of Allowance for Doubtful Account.

Step #3: Find the difference between the two balances calculated above.

• Step 1

A	Accounts receivables (Dec 31, 2017)	$          150,000.00
B	Allowance account balance required equal to	3%
C = A x B	Adjusted balance of Allowance account	$              4,500.00

• Step 2

A	Beginning Balance of Allowance account	$              1,500.00
B	Jul 1 , 2017 Written off accounts	$                (800.00)
C	Aug 31, 2017 Write Off reversed	$                  200.00
D = A+B+C	Unadjusted balance of Allowance account	$                  900.00

• Step 3: Adjustment required of amount = $ 4500 - $ 900 = $ 3,600
• Answer

The journal entry on July 1, 2017 includes a debit to BAD DEBT EXPENSE for $ 3,600 and a credit to ALLOWANCE FOR DOUBTFUL (or Uncollectible) ACCOUNTs for $ 3,600.