Question

The following selected accounts are for Keystone, Inc., a name brand shoe wholesale store, as of 2009 December 31. Prior to closing the accounts and making allowance for uncollectible accounts entries, the $ 5,000 account of Morgan Company is to be written off (this was a credit sale of 2009 February 12).

Accounts receivable	$ 360,000
Allowance for uncollectible accounts (credit)	6,000
Sales	1,680,000
Sales returns and allowances	30,000

Prepare journal entries to record all of these transactions and the uncollectible accounts expense for the period. Assume the estimated expense is 2 per cent of net sales.

Give the entry to record the estimated expense for the period if the allowance account is to be adjusted to 5 per cent of outstanding receivables instead of as in (a).

Answer 1

• Journal Entry for accounts written off

Accounts title	Debit	Credit
Allowance for Uncollectible accounts	$                               5,000.00
Accounts receivables		$                 5,000.00
(account written off)

---This entry will be same under both methods.

• Journal entry to record Uncollectible expense following % of sale method:

Sales	$                       1,680,000.00
Sales returns	$                             (30,000.00 )
Net Sales	$                       1,650,000.00
2% of net sales	$                             33,000.00

Accounts title	Debit	Credit
Bad Debt (Uncollectible) Expenses	$                             33,000.00
Allowance for Uncollectible accounts		$               33,000.00
(expense estimated as per 2% of net sales)

• Journal entry to record Uncollectible expense following allowance account balance adjusted to % of accounts receivables:

Accounts receivables	$                           360,000.00
Written Off	$                             (5,000.00)
Outstanding Accounts receivables	$                           355,000.00
5% of above = Adjusted balance of Allowance account	$                             17,750.00

Beginning Allowance account balance	$                               6,000.00
Account written off	$                             (5,000.00)
Unadjusted balance	$                               1,000.00
Adjusted balance required	$                             17,750.00
amount of Uncollectible expenses	$                             16,750.00

Accounts title	Debit	Credit
Bad Debt (Uncollectible) Expenses	$                             16,750.00
Allowance for Uncollectible accounts		$               16,750.00
(expense estimated as per % of account receivables)