Question

Adria Lopez, owner of Success Systems, realizes that she needs to begin accounting for bad debts expense. Assume that Success Systems has total revenues of $64,000 during the first three months of 2014, and that the Accounts Receivable balance on March 31, 2014, is $22,317. Prepare the adjusting entry needed for Success Systems to recognize bad debts expense, which are estimated to be 2% of accounts receivable on March 31, 2014 (assume a zero unadjusted balance in the Allowance for Doubtful Accounts at March 31). and Assume that Success Systems' Accounts Receivable balance at June 30, 2014, is $20,750 and that one account of $84 has been written off against the Allowance for Doubtful Accounts since March 31, 2014. If Adria Lopez uses the method prescribed in Part 1b, what adjusting journal entry must be made to recognize bad debts expense on June 30, 2014?

Answer 1

• All working forms part of the answer
• Working for Bad Debt expense on Mar 31, 2014

	Accounts receivables	Allowances for Doubtful accounts
Unadjusted balance on Mar 31, 2014	$                 22,317.00	$                                -
Adjusted balance that should exist on June 30	$                 22,317.00	$                       446.34 [22317 x 2%]
Bad debt expense		$                       446.34 [$446.34 - $0]

• Working for Bad Debt expense on June 30, 2014

	Accounts receivables	Allowances for Doubtful accounts
Unadjusted balance on June 30, 2014	$                 20,750.00	$                       446.34 [calculated above]
Amount written off since Mar 31	$                       (84.00)	$                       (84.00)
Balance	$                 20,666.00	$                       362.34
Adjusted balance that should exist on June 30	$                 20,666.00	$                       413.32 [20666 x 2%]
Bad debt expense		$                         50.98 [$413.32 - $362.34]

• Journal Entries

Date	Accounts Titles & explanations	Debit	Credit
31-Mar-14	Bad Debt Expense	$                       446.34
	Allowances for Doubtful accounts		$                       446.34
	(Bad Debts recorded for 3 months)
Between 31 Mar to 30 June	Allowances for Doubtful accounts	$                          84.00
	Accounst receivables		$                         84.00
	(Account finally written off)
30-Jun-14	Bad Debt Expense	$                          50.98
	0		$                         50.98
	(Bad Debts recorded for 3 months)