Question

Carla Company reports the following financial information before adjustments.

Dr.

Cr.

Accounts Receivable $150,000
Allowance for Doubtful Accounts $2,650
Sales Revenue (all on credit) 821,100
Sales Returns and Allowances 50,660

Prepare the journal entry to record bad debt expense assuming Carla Company estimates bad debts at (a) 4% of accounts receivable and (b) 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,570 debit balance. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Answer 1

• Carla Company estimates bad debts at (a) 4% of accounts receivable

Dr Bad Debt Expense $ 3,350

Cr Allowance for Uncollectible Accounts $ 3,350

• (b) 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,570 debit balance.

Dr Bad Debt Expense $ 4,570

Cr Allowance for Uncollectible Accounts $ 4,570

Step-by-step explanation:

Carla Company estimates bad debts at (a) 4% of accounts receivable

Dr Bad Debt Expense $ 3,350

Cr Allowance for Uncollectible Accounts $ 3,350

If the company applies the allowance method, it means that the account Allowance for Uncollectible Accounts must show as balance the % estimated of accounts receivables as CREDIT.

Because the company already has a CREDIT balance in the Allowance for Doubtful Accounts it's necessary to register an entry that complement the existing value and reflect the value as % of account receivable.

(b) 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,570 debit balance.

Dr Bad Debt Expense $ 4,570

Cr Allowance for Uncollectible Accounts $ 4,570

Because the company has a DEBIT balance in the Allowance for Doubtful Accounts it's necessary to register an entry that compensate the existing value and reflect the CREDIT value as % of account receivable.