Question

Question

Company X had the following information before adjustments:

Accounts receivable $230,000 (debit balance)

Allowance for doubtful accounts $3400 (credit balance)

Sales revenue (on credit) $1,580,000 (credit balance)

Sales returns and allowances $85,000 (debit balance)

Prepare the journal entry to record bad debt expense if the company estimates it to be 3% of receivables. Now assume the company determines that $3,000 will never be received. Prepare the journal entry to record the write-off. What is the net amount expected to be collected of the receivables after the write-off?

Answer 1

WORKING NOTES: 1
	CALCULATION OF ALLOWANCE ACCOUNT ON THE BASIS OF % OF ACCOUNT RECEIVABLE
	Account Receivable	$                230,000
	Estimated uncollectable	3%
	Estimated amount of uncollectable	$                     6,900
WORKING NOTES: 2
	CALCULATION OF PROVISION OF BAD DEBTS FOR THE YEAR END
	Estiamted amount of uncollectable of the year	$                     6,900	Credit
	Less: Allowance for Doubtfull Debts (Opening Bal.)	$                     3,400	Credit
	Balance need to be make entry of Bad Debt	$                     3,500	Credit
	Bad debts expenses recognise in the year =	$                     3,500
SOLUTION: 1
Journal Entries
Transaction	Account Title and explanation	Debit	Credit
1	Bad Debt Expenses	$                     3,500
	Allowance for Doubtful Account		$                       3,500
	(To record the bad debt Expenses)
2	Allowance for Doubtful Accounts	$                     3,000
	Account Receivable		$                       3,000
	(To recocrd the Write of Bad Debts )
SOLUTION: 2
	Calculation of Net amount expected to be collected of the Receivable
	Account Receivable	$                230,000
	Less: Account Receivalbe W/o	$                     3,000
	Net Balance in Account Receivable	$                227,000
	Less: Balance in Allowance For Doubtfull Accounts	$                     3,900
	($ 6,900 - $ 3000)
	Net Expected Receivable	$                223,100
	Answer = $ 223,100