Question

On Dec 31^st 2015, before adjusting entries, Nook Inc. reports the following information for the year of 2015:

Net Credit Sales	$200,000
Net Cash Sales	$120,000
Net Sales Revenue	$320,000
COGS	$140,000
Gross Profit	$180,000
Net Accounts Receivable	$14,000
Allowance for Doubtful Accounts	$3,000

Nook Inc. estimates that 2% of net credit sales in 2015 will be uncollectible.

Provide the adjusting entries on Dec 31^st 2015 required to recognize the bad debt expense for the year of 2015

What is the ending balance of the Allowance for Doubtful accounts after adjusting entries?

Answer 1

1.Adjusting Jounal Entries

Date		Debit	Credit
31-Dec-15	Provision doubtful debts account Dr	$3,000.00
	Statement of profit & loss (income statement)Dr	$1,000.00
	To Bad debts		$4,000.00
	(Bad debts adjusted from provision for doubtful debts)
	Bad Debts Account Dr	$4,000.00
	To Account receivable account		$4,000.00
	($14,000*2% =$280)
	(Bad debts adjusted against account receivable)
Note:Provision already charged to income statement

2.

Ending balance of provision for doubtful account as on 31-Dec-2015
Balance before bad debts	$   3,000.00
Less:Bad debts	$ (3,000.00)
Ending Balance after bad debts adjustment	$ 0.00