Question

The credit manager of Montour Fuel has gathered the following information about the company's accounts receivable and credit losses during the current year: Uncollectible accounts expense is estimated at an amount equal to 2.5 percent of net credit sales. Uncollectible accounts expense is recognized by adjusting the balance in the Allowance for Doubtful Accounts to the amount indicated in the year-end aging schedule. The balance in the allowance account at the beginning of the current year was $25,000. (Consider the effect of the write-offs during the year on the balance in the Allowance for Doubtful Accounts.) The company uses the direct write-off method of accounting for uncollectible accounts. Prepare one journal entry summarizing the recognition of uncollectible accounts expense for the entire year under each of the above independent assumptions. (Omit the "$" sign in your response.)

Answer 1

To recognize uncollectible accounts expense for the entire year, you need to adjust the balance in the Allowance for Doubtful Accounts based on the aging schedule. The journal entry would be a debit to Uncollectible Accounts Expense and a credit to Allowance for Doubtful Accounts.

Step-by-step explanation:

Journal Entry for Recognizing Uncollectible Accounts Expense

To recognize uncollectible accounts expense for the entire year, we need to adjust the balance in the Allowance for Doubtful Accounts based on the aging schedule. The uncollectible accounts expense is estimated at 2.5% of net credit sales. Let's assume the net credit sales for the year were $1,000,000. The journal entry would be:

Debit: Uncollectible Accounts Expense $25,000

Credit: Allowance for Doubtful Accounts $25,000

This entry recognizes the expense for the entire year and adjusts the balance in the allowance account to the amount indicated in the aging schedule.

Answer 2

To recognize uncollectible accounts expense for the entire year, a journal entry is prepared with credits to the Allowance for Doubtful Accounts and debits split between Bad Debt Expense and Allowance for Doubtful Accounts.

Step-by-step explanation:

To summarize the journal entry for recognizing uncollectible accounts expense for the entire year, you would credit the Allowance for Doubtful Accounts for the amount of the estimated uncollectible accounts expense. The debit entry would be split between Bad Debt Expense (recognized in the income statement) and Allowance for Doubtful Accounts (balance sheet). Here is an example:

Date: December 31, 20XX

Allowance for Doubtful Accounts $X,XXX

Bad Debt Expense $X,XXX

Allowance for Doubtful Accounts $X,XXX