Question

At year-end (December 31), Chan Company estimates its bad debts as 0.5% of its annual credit sales of $975,000. Chan records its Bad Debts Expense for that estimate. On the following February 1, Chan decides that the $580 account of P. Park is uncollectible and writes it off as a bad debt. On June 5, Park unexpectedly pays the amount previously written off.

Prepare the journal entries for these transactions.

• Record the estimated bad debts expense.
• Wrote off P. Park's account as uncollectible.
• Reinstated Park's previously written off account.
• Record the cash received on account.

Answer 1

Allowance for doubtful account is created to credit the amount estimated to be uncollectible

when the receivable is written off allowance for doubtful account is debited at that time again bad debt expense is not required to be recorded.

When the account receivable written off previously is received back the above entry is reversed and one more entry is passed to debit cash received.

we will journalize the above transactions

date	General journal	Debit	credit
Dec. 31	Bad debt expense*	$4,875
	allowance for doubtful account		$4,875
	[To Record the estimated bad debts expense. ]
Feb 1	Allowance for doubtful account	$580
	Account receivable-P. park		$580
	[ Write off P. Park's account as uncollectible ]
June 05	Accounts receivable-P. Park	$580
	Allowance for doubtful accounts		$580
	[ Reinstated Park's previously written off account ]
June 05	cash	$580
	Accounts receivable-P.Park		$580
	[ Record the cash received on account]

* bad debt expense = $975,000*0.5%

=$4,875