Question

At year-end (December 31), Chan Company estimates its bad debts as 0.60% of its annual credit sales of $643,000. Chan records its Bad Debts Expense for that estimate. On the following February 1, Chan decides that the $322 account of P. Park is uncollectible and writes it off as a bad debt. On June 5, Park unexpectedly pays the amount previously written off.

Prepare Chan's journal entries for the transactions.

Answer 1

Journal entries

Date	Particulars	Debit ($)	Credit ($)
Dec 31	Bad debt expense ($643000 X 0.60%)	3858
	To Allowance for doubtful accounts		3858
Feb 01	Allowance for doubtful accounts	322
	To Accounts receivable - P.Park		322
June 05	Accounts receivable - P.Park	322
	To Allowance for doubtful accounts		322
June 5	Cash	322
	To Accounts receivable - P.Park		322

Note:
When account of P.Park seemed uncollectible, then it was written off. But if it was unexpectedly recovered in future, then first the journal entry to write off bad debt needs to be reversed so that accounts receivable can be again put in the books, then cash collection entry is passed against it.

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