Question

Portillo Company’s ledger at the end of the current year shows Accounts Receivable of $150,000.

Instructions

a. If Allowance for Doubtful Accounts has a credit balance of $3,000 in the trial balance and bad debts are expected to be 10% of accounts receivable, journalize the adjusting entry for the end of the period.

b. If Allowance for Doubtful Accounts has a debit balance of $3,000 in the trial balance and bad debts are expected to be 10% of accounts receivable, journalize the adjusting entry for the end of the period.

Answer 1

• All working forms part of the answer
• Basic Concept to remember when using Allowance method:

The Allowance account MUST have a CREDIT (adjusted) balance equal to the Estimated amount uncollectible.

• Requirement ‘a’

Requirement 'a'
A	Balance of Accounts receivables	$              150,000	Debit
B	% estimated to be uncollectible	10%
C = A x B	Adjusted balance of Allowance account required	$                15,000	Credit
D	Unadjusted balance of Allowance account in Trial balance	$                  3,000	Credit
E	Bad Debt Expense to be credited to Allowance account	$                12,000

Accounts title	Debit	Credit
Bad Debt Expense	$                12,000
Allowance for Doubtful Accounts		$               12,000
(Bad Debt Expense recorded)

• Requirement ‘b’

Requirement 'b'
A	Balance of Accounts receivables	$            150,000	Debit
B	% estimated to be uncollectible	10%
C = A x B	Adjusted balance of Allowance account required	$              15,000	Credit
D	Unadjusted balance of Allowance account in Trial balance	$                 3,000	Debit
E	Bad Debt Expense to be credited to Allowance account	$              18,000

Accounts title	Debit	Credit
Bad Debt Expense	$              18,000
Allowance for Doubtful Accounts		$                      18,000
(Bad Debt Expense recorded)