Question

Custom Designs, Inc. uses the allowance method to estimate and record bad debt expense. It has an accounts receivable balance of $90,000 and an allowance for uncollectible accounts credit balance of $6,200. Suppose an account receivable balance of $1,200 from one customer is determined to be uncollectible and is written off. What was the net accounts receivable amount before and after the write off?

On January 1, 20X1, Mechanical Engineers, Inc. had an accounts receivable balance of $506,000 and a credit balance in the allowance for uncollectible accounts of $45,000. During January, the company had credit sales of $2,150,000, collections on credit sales of $1,950,000, and write offs of uncollectible accounts receivable totaling $41,000. All of the company’s sales are credit sales.
a)   Prepare journal entries to record the credit sales, cash collections, and accounts receivable write offs for January.
b)   Mechanical Engineers, Inc. estimates bad debt expense at 2.5% of credit sales. Prepare the journal entry for bad debt expense.
c)   Show the balance sheet presentation of accounts receivable.

Answer 1

Q1.
Balance Sheet
			Before	After
Accounts recievable-Gross	90000	88800
Less: Allowance		6200	5000
Net Accounts receivable	83800	83800
Q2.
Jourrnal entries:
S.no.	Accounts title and explanations		Debit $	Credit $
a.	Accounts recievable			2150000
	Sales revenue				2150000
	(for sales made on account)
b.	Cash				1950000
	Accounts receivable			1950000
	(for cash collected)
c.	Allowance for Uncollectible accounts	41000
	Accounts receivable			41000
	(for amount written off)
d.	Bad debts expenses Account		53750
	Allowance for uncollectible accounts (2150000*2.5%)	53750
	(for amount written off)
Balance Sheet
			Amount $
Accounts recievable-Gross	665000
Less: Allowance		57750
Net Accounts receivable	607250
Note:
Accounts receivable balance:
Beginning Accounts receivable	506000
Add: Credit sales		2150000
Less: Cashh collections	-1950000
Less: Amount written off	-41000
Ending balance of AR		665000
Allowance for uncollectible accounts:
Beginning balance		45000
Add: Bad debts expense	53750
Less: Amount written off	-41000
Ending balance		57750	Credit