Question

As of December 31, 2020, Gill Co. reported accounts receivable of $216,000 and an allowance for uncollectible accounts of $8,400. During 2021, Gill recorded $1,007,800 of credit sales, collections of $978,000, and wrote off $7,800 of bad debts. An analysis of Gill Co.'s December 31, 2021, accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. Bad debt expense for 2021 would be:

Answer 1

$6,574

Step-by-step explanation:

Allowance for uncollectible accounts is a contra asset account and it has credit nature. It needs to be debited to decrease the balance and credited to increase the balance. Balance of this account is adjusted in the account receivable to report the net receivable balance in the balance sheet.

As per given data

Beginning allowance for uncollectible accounts balance = $216,000

Write off is the adjustment mad in this account and it needs to be debited in this account, this transaction will reduce the balance.

Adjusted Balance = $8,400 - 7,800 = $600

Account receivable balance = $216,000 + 1,007,800 - $978,000 = $245,800

Estimated allowance for uncollectible accounts balance = $245,800 x 3% = $7,374

As allowance for uncollectible accounts has already have balance of $600, Bad debt expense for the year is $6,574 ($7,374 - $800)