Question

During its first year of operations, Gehrig Company had credit sales of $3,000,000, of which $400,000 remained uncollected at year-end. The credit manager estimates that $18,000 of these receivables will become uncollectible.

Prepare the journal entry to record the estimated uncollectibles. (Assume an unadjusted balance of zero in Allowance for Doubtful Accounts.) (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

The company will debit Bad Debt Expense and credit Allowance for Doubtful Accounts for the estimated uncollectible amount of $18,000 to reflect anticipated losses from uncollectible accounts.

Step-by-step explanation:

The subject of this question is the recording of estimated uncollectible accounts receivable in accounting. When a company estimates that some of its accounts receivable will not be collected, it needs to create an allowance for doubtful accounts to reflect potential losses. This is done through an adjusting journal entry at the end of the accounting period.

The journal entry to record the estimated uncollectibles in Gehrig Company's accounting records would be:

• Debit Bad Debt Expense for $18,000
• Credit Allowance for Doubtful Accounts for $18,000

This entry increases the expense for estimated bad debts on the income statement and also increases the allowance for doubtful accounts on the balance sheet to reflect anticipated losses from uncollectible accounts.