Question

At the end of the first year of operations, Gaur Manufacturing had gross accounts receivable of $348,000. Gaur's management estimates that 7% of the accounts will prove uncollectible. What journal entry should Gaur record to establish an allowance for uncollectible accounts?

Answer 1

To account for uncollectible receivables, Gaur Manufacturing creates a journal entry debiting Bad Debt Expense and crediting Allowance for Doubtful Accounts for the estimated amount of $24,360.

Step-by-step explanation:

When Gaur Manufacturing estimates that 7% of its gross accounts receivable of $348,000 will prove uncollectible, they need to record an allowance for doubtful accounts. The amount to be recorded is calculated as 7% of $348,000, which is $24,360. The journal entry to establish an allowance for uncollectible accounts would be:

• Debit Bad Debt Expense for $24,360
• Credit Allowance for Doubtful Accounts for $24,360

This entry reflects both the estimated uncollectible amount in the allowance account and the expense associated with uncollectible accounts in the income statement for the year.

Answer 2

Step-by-step explanation:

The journal entry is shown below:

Bad debt expense A/c Dr $24,360

To Allowance for doubtful debts $24,360

(Being bad debt expense is recorded)

The computation of the bad debt expense is shown below:

= Gross accounts receivable × estimated percentage given

= $348,000 × 7%

= $24,360

We debited the bad debt expense and credited the allowance for doubtful debts account so that the correct posting can be done