Question

Engro Company at the end of the current year shows:
Accounts Receivable PKR 18,000
Sales Revenue ​PKR 1,800,000
Sales Returns and Allowances PKR 60,000.

A) If Engro uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at December 31, assuming Engro determines that Anwar’s PKR 300 balance is uncollectible.








B) If Allowance for Doubtful Accounts has a credit balance of $430 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be 10% of accounts receivable.

Answer 1

Solution:

A)

Under Direct Write-off method, Bad Debt Expense / Uncollectible Accounts Expense will be debited and the Accounts Receivable will be Credited with the amount of uncollectibles.

B)

Under Allowance method the amount detrmined to be uncollected is credited to Allowance for Doubtful Accounts, We do not credit Accounts receivables until it is certain. Here the Allowance for Doubtful debts account is already having a credit balance of $430, hence we need to credit only that amount that will equal to 10% of Accounts Receivables.

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