Question

During the current year, Robby’s Camera Shop had sales revenue of $169,000, of which $68,000 was on credit. At the start of the current year, Accounts Receivable showed a $21,000 debit balance and the Allowance for Doubtful Accounts showed a $1,600 credit balance. Collections of accounts receivable during the current year amounted to $51,000.

Data during the current year follows:

(a) On December 31 an Account Receivable (J. Doe) of $1,100 from a prior year was determined to be uncollectible; therefore, it was written off immediately as a bad debt.
(b) On December 31, on the basis of experience, a decision was made to continue the accounting policy of basing estimated bad debt losses on 3.0 percent of credit sales for the year.

Prepare the required journal entries for the two items on December 31, end of the accounting period.

Answer 1

write-off:

allowance for doubtful accounts 1,100 debit

accounts receivable 1,100 credit

--to record write-off J.Doe Account--

bad debt expense 2,040 debit

allowance for doubtful accounts 2,040 credit

--to adjust for bad debt expense--

Step-by-step explanation:

The write-off will decrease both, the allowance and accounts receivable. No expense is recognize when performing write-off.

Bad debt expense for the year:

credit sales x expected bad debt

68,000 x 3% = 2,040

As is determined from sales, we adjust for the whole amount.