Question

Paul is making the annual accounts receivable and allowance for doubtful accounts adjustments at year end. The proportion of uncollectible accounts is estimated during the year based on past experience which indicates 1.5% of net credit sales will be uncollectible. Total sales for the year were $2 million, of which 10% were cash transactions. Paul determines that a $10,000 account from Rent, Inc is uncollectible and will write off this account before making year-end adjustments. Below are the unadjusted account balances:

Sales $2,000,000

Accounts Receivable $750,000

Sales Discounts $125,000

Sales Returns & Allowances $175,000

Allowance for Doubtful Accounts $16,500

Bad debt expense $0.00

(a) Calculate and record the journal entry for the amount of bad debt expense that should have been recorded during the year before making adjusting entries.

An accounts receivable aging after writing-off the Rent, Inc account follows:

Total	0-60 days	61-90 days	91-120 days	>120 days
$740,000	$390,000	$115,000	$210,000	$25,000
% uncontrollable	1%	5%	15%	40%

(b) Prepare an aging and, if the allowance for doubtful accounts balance needs to be adjusted, record the journal entry.

Answer 1

Total sale			2000000
less: sale discount			-125000
less: sale return			-175000
net sale			1700000
less: cash sale (1700000*10%)			170000
net credit sale			1530000
Uncollectible = 1530000*1.5% = 22950
Journal entries
particulars			Debit	credit
allowance for doubtful debt			10000
account receviable				10000
Bad debt exp			22950
allowance for doubtful debt				22950
ageging
period	balance	%	uncollected(1)*(2)
0-60	390000	1%	3900
61-90	115000	5%	5750
90-120	210000	15%	31500
>120	25000	40%	10000
total			51150
b) amount recognised (740000*1.5%)				11100
amount provide (51150-11100)				40050
				51150
particulars			Debit	credit
bad debt exp			40050
allowance for doubtful debts				40050