Question

Indigo, Inc. had net sales in 2020 of $1,471,700. At December 31, 2020, before adjusting entries, the balances in selected accounts were Accounts Receivable $385,300 debit, and Allowance for Doubtful Accounts $4,410 credit. If Indigo estimates that 6% of its receivables will prove to be uncollectible. Prepare the December 31, 2020, journal entry to record bad debt expense

Answer 1

December 31, 2020

• Dr Bad Debt expense 18,690
• Cr Allowance For Doubtful Accounts account 18,690

Step-by-step explanation:

First we need to determine the total amount of uncollectible accounts receivable = $385,600 x 6% = $23,100

Then we must subtract the amount already recorded in allowance for doubtful accounts from our total uncollectible accounts = $23,100 - $4,410 = $18,690

We have to debit the difference and credit the contra asset account:

Dr Bad Debt expense 18,690

Cr Allowance For Doubtful Accounts account 18,690