Mitchell and O’Brien, CPAs, P.C., prepared 600 business and personal tax returns for the filing season ending April 15, 2019, for total billings of $135,000. On May 1, 2020, Mitchell and O’Brien wrote off $2,600 related to the services performed in 2019. The firm determined that, based on past experience, approximately 3% of fees would be uncollectible.
Solution:
adjusting journal entry for bad debt on 12/31/2019:
Journal Entry | ||||
S.No | Date | Particulars | Debit | Credit |
1 | 31-Dec-19 | Bad Debt Expense ($135000*3%) | $4,050 | |
Allowance for Uncollectible Account | $4,050 |
journal entry to record the defaulted amount on 5/1/2020:
Journal Entry | ||||
S.No | Date | Particulars | Debit | Credit |
2 | 01-May-20 | Allowance for Uncollectible Account | $2,600 | |
Accounts Receivable | $2,600 |
a.
balance in the account at the end of 2019, after the adjusting entry is posted = $3500 + 4050 = $7,550
b.
balance in the account after the entry on May 1, 2020 is posted = $7550 - $2600 = $4,950
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