Question

At year-end (December 31), Chan Company estimates its bad debts as 0.40% of its annual credit sales of $980,000. Chan records its Bad Debts Expense for that estimate. On the following February 1, Chan decides that the $490 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 the journal entries for these transactions.

Answer 1

Solution:

Journal Entries - Chan Company
Date	Particulars	Debit	Credit
31-Dec	Bad debts expense Dr ($980,000*0.40%)	$3,920.00
	To Allowance for doubtful accounts		$3,920.00
	(To record bad debts expense for the year)
1-Feb	Allowance for doubtful accounts Dr	$490.00
	To Accounts receivables		$490.00
	(To write off accounts receivables)
5-Jun	Accounts receivables Dr	$490.00
	To Allowance for doubtful accounts		$490.00
	(To reinstate debtor account previosuly written off)
5-Jun	Cash Dr	$490.00
	To Accounts receivables		$490.00
	(To record collection from customers)