Answer:
- a. Bad debts are estimated to be 3% of credit sales.
Dr Bad Debt Expense $ 106.180
Cr Allowance for Uncollectible Accounts $ 106.180
- b. Bad debts are estimated to be 2% of total sales.
Dr Bad Debt Expense $ 117.545
Cr Allowance for Uncollectible Accounts $ 117.545
- c. An aging analysis estimates that 6% of year-end accounts receivable are uncollectible.
Dr Bad Debt Expense $ 69.278
Cr Allowance for Uncollectible Accounts $ 69.278
Step-by-step explanation:
If the company applies the allowance method, it means that the account Allowance for Uncollectible Accounts must show the balance as CREDIT.
Because the company has a debit balance in the Allowance for Uncollectible Accounts it's necessary to register an entry that compensate the DEBIT value and reflect the CREDIT value estimated.
Bad accounts are those credits granted by the company and there is no possibility of being charged.
"When customers buy products on credits but the company cannot collect the debt, then it's 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 reported as bad debt expenses negatively affect the income statement and the 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/Credit Sales/Total Sales 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 Allowance for Uncollectible Accounts (credit)
At the time of cancellation, since the expenses were recognized before, we only use the Allowance for Uncollectible Accounts (Debit) with accounts receivable (credit), with this we are recognizing the bad credit of the company.