Ryan’s Money Co. estimates bad debts at the end of each month using the percenta
ID: 2562724 • Letter: R
Question
Ryan’s Money Co. estimates bad debts at the end of each month using the percentage of credit sales method. The company had credit sales of $250,000 for the month of July and estimates that 8% of those will be uncollectible. On July 31, the balance in Accounts Receivable was $325,000, and the balance in Allowance for Bad Debts was $2,500.
a. Prepare the journal entry for July’s bad debt expense.
b. On August 13, the company wrote off accounts totaling $16,000. Prepare any necessary journal entries.
c. In September, Blake’s Plumbing sent a check for $3,000. This account had been written off as uncollectable on August 13. Prepare any necessary journal entries.
d. On December 31, the balance sheet for Ryan’s Co. shows the following amounts:
Accounts Receivable 240,000
Allowance for Bad Debts 8,500
The company adjusts its Allowance for Bad Debts account at the end of the year base on the aging method. The company’s accountant provided the following information:
Days Outstanding Receivable Amount Estimated Allowance Estimate
Uncollectable
< 30 100,000 2% 2,000
30-60 80,000 6% 4,800
61-90 40,000 8% 3,200
> 90 20,000 16% 3,200
Provide the appropriate entry to adjust bad debt expense:
Thank you for your help.
Explanation / Answer
a. Credit sales = 250,000
Percentage of uncollectable = 8%
Allowance for uncollectable = 250,000*8% = 20,000
Journal entry for July's bad debt expense
Bad debts 20,000
Allowance for uncollectable 20,000
b. Accounts receivables decreases when Accounts receivables were written off
Journal entry for write off
Allowance for uncollectable 16,000
Accounts receivable 16,000
c. Accounts receivables increases when the bad debt recoveries occur
Journal entry for bad debt recoveries
Accounts receivable 3,000
Allowance for uncollectable 3,000
d. Total allowance estimate = 2,000+4,800+3,200+3,200 = 13,200
Allowance for bad debts in the beginning = 8,500
Allowance for bad debts on July 31 = 13,200
The difference is the allowance for bad debts for the year = 13,200 - 8,500 = 4,700
Journal entry for adjustment
Bad debts 4,700
Allowance for uncollectable 4,700.