The preparation of the journal entries assuming that the estimate of uncollectible accounts is as follows:
Journal Entries:
a. 4% of accounts receivable
Debit Bad Debts Expense $31,300
Credit Allowance for Doubtful Accounts $31,300
- To record the bad debts expense for the period.
b. 2% of net sales
Debit Bad Debts Expense $13,800
Credit Allowance for Doubtful Accounts $13,800
- To record the bad debts expense for the period.
Data and Calculations:
Debit Credit
Accounts receivable $180,000
Allowance for doubtful accounts 3,500
Sales returns and allowances 25,000
Credit Sales $540,000
Net sales = $515,000 ($540,000 - $25,000)
Adjustment Analysis:
a. 4% of accounts receivable
Ending balance of Allowance for doubtful accounts = $27,800 {($180,000 - $25,000 + $540,000) x 4%}
Bad Debts Expense = $31,300 ($3,500 + $27,800)
Bad Debts Expense $31,300 Allowance for Doubtful Accounts $31,300
b. 2% of net sales
Ending balance of Allowance for doubtful accounts = $10,300 ($515,000 x 2%)
Bad Debts Expense = $13,800 ($3,500 + $10,300)
Bad Debts Expense $13,800 Allowance for Doubtful Accounts $13,800
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