Question

Smart Art is a new establishment. During the first year, there were credit sales of $40,000 and collections of credit sales of $36,000. One account for $650 was written off. The company decided to use the aging method to account for bad debts expense. It has calculated an amount of $200 as its estimate of uncollectible amounts at year-end. Prepare the journal entry required to record Bad debts expense at the end of the year.

Answer 1

Step-by-step explanation:

The journal entry is shown below:

Bad debt expense A/c Dr $850

To Allowance for doubtful debts $850

(Being the bad debt expenses recorded)

The computation of bad debt expense is shown below:

= Written off-balance + estimated amount at the end of the year

= $650 + $200

= $850

For recording the bad debt expense we debited the expense account and credited the contra asset account