ABC Company provided this information regarding its accounts receivable at the b
ID: 2516830 • Letter: A
Question
ABC Company provided this information regarding its accounts receivable at the beginning of the current year:
ABC Company reported $21,000,000.00 of net credit sales during the year.
ABC Company only collected $9,900,00.00 of the reported net credit sales.
ABC Company wrote off $51,000.00 of actual bad debts for the year.
ABC Company estimates the allowance for doubtful accounts at 4% of the ending accounts receivable balance.
Required:
Prepare the journal entry to record the year end adjusting entry for the bad debt expense.
Accounts receivable $1,320,000.00 Allowance for doubtful accounts ($320,000.00) Net realizable value $1,000,000.00Explanation / Answer
Bad debt expence is that part of accounts receivable which shall not be received. During the course of business some part of sales is done on credit. This is expected to be received at a future date, however remains unpaid. An allowance is created for such doubtful debts.
The formula for calculating bad debt espenses is:
Bad debt expence = (Accounts receivable at the end*estimated uncollectable percentage)
+ (Written Off- Allowance for doubtful debt)
= (19142000 *4%) + (51000-320000)
= 765680 - 269000
= 496680
Working Notes:
Accounts Receivable = Openning Balance - Net Realisable Value + Credit Sales - Amount received
= 1320000 - 1000000 + 21000000 - 990000
= 19142000
Estimated Uncollectable percentage = 4% (given)
Write Off = 51000 (given)
Allowance for doubtful debt = 320000
Journal Entry:
Bad Debt Expenses 496,680
To Accounts Receivable 496,680