Question

Mel's Hardware uses the allowance method to determine their bad debt expense. The allowance for bad debts is based on the balance in the accounts receivable account. Mel's hardware uses the rate of 0.75% of accounts receivable to determine the appropriate balance in the allowance for doubtful accounts. The data collected from Mel's Hardware is as follows.

A/R: $49,477.00

Allowance for doubtful accounts: debit $350.00

Credit sales: $144,554.00

Bad Debt Expense: -0-

Answer 1

Accounts Receivable		$                                     49,477.00
Allowance for doubtful accounts	(debit)	$                                         350.00
It is given that the allowance for bad debts is based on the balance in accounts receivable
Allowance for doubt ful debts = Accounts receivable * 0.75%
	49477*0.75%
	$                                                                                         371	(Rounded off to nearest whole number)
Therefore for the current period , Allowance for doubtful accounts ahll be	$                                                                         371
Less : Already a debit balance in allowance for doubtful account	$                                                                   (350.00)
Bad debt expense to be recorded	$                                                                                           21
Journal :
Date	Accounts title	Debit	Credit
Dec-31	Bad debt expense	$                                               21
	Allowance for doubtful accounts		$   21
	(Torecord the allowance for bad debt for the current period)