BE8-5 Jaya Co. uses the percentage of receivables basisto record bad debts expen

Question

BE8-5 Jaya Co. uses the percentage of receivables basisto record bad debts expense and concludes that2% of accounts receivable will become uncollectible. Accountsreceivable are $500,000 atthe end of the year, and the allowance for doubtful accountshas
a credit balanceof $1,500.





(a) Prepare theadjusting journal entry to record bad debts expense for theyear.
(b) If theallowance for doubtful accounts had a debit balance of $600 insteadof a credit balance of $1,500,prepare the adjusting journal entry for bad debts expense.
BE8-5 Jaya Co. uses the percentage of receivables basisto record bad debts expense and concludes that2% of accounts receivable will become uncollectible. Accountsreceivable are $500,000 atthe end of the year, and the allowance for doubtful accountshas
a credit balanceof $1,500.





(a) Prepare theadjusting journal entry to record bad debts expense for theyear.
(b) If theallowance for doubtful accounts had a debit balance of $600 insteadof a credit balance of $1,500,prepare the adjusting journal entry for bad debts expense.

Explanation / Answer

Bad debtsexpense = 2% of accounts receivable                                  = 2% *$500000                                  = $10000 (a) Allowance for doubtfull accounts $1500 (Cr.)balance                                                                                                                                 Dr.                            Cr.             adjustingentry:                                       Bad debts expense ($10000-$1500)                          $8500                                                   Allownce for doubtfullaccounts                                                        $8500 (b) Allowance for doubtfull accounts $600 (Dr.)balance      adjusting entry:                                      Bad debts expense ($10000 + $600)                         $10600                                                   Allowancefor doubtfullaccounts                                                     $10600

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