Question

Smart Calendars is a new business. During its first year of operations, credit sales were $40,000, and collections of credit sales were $36,000. One account, $650, was written off. Using the aging-of-receivables method, management calculates $200 as its estimate of uncollectible amounts at year end. Prepare the journal entry to record bad debts expense.

Answer 1

Credit Sales = $40,000

Collections = $36,000

Initial accounts receivable = $40,000 - $36,000 = $4,000

Amount written off = $650

Account receivable after write off = $4,000 - $650 = $3,350

Un-Collectible amount = $200

Final account receivable = Account receivable after write off - Uncollectible amount = $3,350 - $200 = $3,150

So, accounts receivable at the end of the first year is $3,150

Journal entry to record bad debts expense

S/n Account Titles and Explanation Debit Credit

1. Bad debt expenses $650

Accounts receivables $650

(To write off the account amount of $650)

2. Bad debt expenses $200

Allowances fo bad debt $200

(To create provision for bad debts)