Answer:
Bad debt expense $ 5,400
Accounts Receivable $ 5,400
Step-by-step explanation:
To register to amount of bad debt expenses we need to consider the current balance of the Allowance for Uncollectible Accounts.
With the indirect method of write off we have to shows the total estimated balance in the Allowance for Uncollectible Accounts, in this case $5,000.
As we have a debit balance we have to compensate that amount and show a credit balance equal to the estimated amount.
Estimated Uncollectible $ 5,000
Initial Balance
Dr Accounts Receivable $ 98,000
Dr Allowance for Uncollectible Accounts $ 400
What is the amount of bad debt expense?
Bad debt expense $ 5,400
Accounts Receivable $ 5,400
Final Balance
Dr Accounts Receivable $ 98,000
Cr Allowance for Uncollectible Accounts $ 5,000
Bad accounts are those credits granted by the company and there is no possibility of being charged. When customers buy products on credit but the company cannot collect the debt, then it is necessary to cancel the unpaid invoice as uncollectible.
"One way is to directly cancel bad debts at the time it was decided that the credit is bad, the total amount is reported as bad debt expenses that negatively affect the income statement and accounts receivable are reduced by the same amount, less assets."
The other way is to determine a percentage of the total amount of accounts receivable as bad debts, there are many ways to analyze accounts receivable and calculate the value of bad debts.
When the company has the percentage of uncollectible accounts, the required journal entry is Bad Expenses (debit) with Reserve for Bad Accounts (credit).
At the time of cancellation, since the expenses were previously recognized, we only use the Provision for bad accounts (debit) with accounts receivable (credit), with this we are recognizing the bad credit of the company.