Question

At December 31, 2022, the trial balance of Sheridan Company contained the following amounts before adjustment.

		Debit		Credit
Accounts Receivable		$184,000
Allowance for Doubtful Accounts				$ 1,100
Sales Revenue				999,600

(a)		Prepare the adjusting entry at December 31, 2022, to record bad debt expense, assuming that the aging schedule indicates that $11,000 of accounts receivable will be uncollectible.
(b)		Repeat part (a), assuming that instead of a credit balance there is a $1,100 debit balance in Allowance for Doubtful Accounts.
(c)		During the next month, January 2023, a $3,200 account receivable is written off as uncollectible. Prepare the journal entry to record the write-off.
(d)		Repeat part (c), assuming that Sheridan Company uses the direct write-off method instead of the allowance method in accounting for uncollectible accounts receivable.

Answer 1

Answer a)

Bad debts expense is of amount $11,000 as at 31 December 2022

To record bad debt expense, following entry must be posted-

Bad Debts Expense A/c Dr	$11,000
To Allowance for Doubtful Accounts A/c	$11,000

Trial Balance after adjustment-

Particulars	Debit	Credit
Accounts Receivable	$ 184,000
Bad Debts Expense	$ 11,000
Allowance for Doubtful Accounts ($ 1,100 + $ 11,000)		$ 12,100
Sales Revenue		$ 999,600

Answer b)

Bad debts expense is of amount $11,000 as at 31 December 2022

To record bad debt expense, following entry must be posted-

Bad Debts Expense A/c Dr	$11,000
To Allowance for Doubtful Debts A/c	$11,000

The balance in Allowance for Doubtful Debts A/c is $ 1,100 debit. On recording of bad debts expenses of $ 11,000 the balance will be $ 9,900 credit ($ 11,000 - $ 1,100)

Trial Balance after adjustment-

Particulars	Debit	Credit
Accounts Receivable	$ 184,000
Bad Debts Expense	$ 11,000
Allowance for Doubtful Accounts (-$ 1,100 + $ 11,000)		$ 9,900
Sales Revenue		$ 999,600

Answer c)

Balance in Allowance for doubtful debts account is $ 1,100 as on 31 December 2022. To record writing off of Accounts receivable of $ 3,200, following entry must be passed in January 2023-

Bad Debts Expense A/c Dr	$3,200
To Accounts Receivable A/c	$3,200

For utilisation of the Allowance for doubtful debt account, following entry must be posted-

Allowance for Doubtful Accounts A/c Dr	$ 1,100
To Profit & Loss A/c	$1,100

Answer d)

Under the direct write off method, no allowance for doubtful debts is created and the Accounts Receivable balances are written off as and when the bad debt is actually incurred.

To record the direct write off of the Accounts receivable instead of allowance method, following entry must be posted-

Bad Debts Expense A/c Dr	$3,200
To Accounts Receivable A/c	$3,200