1. A company had the following items and amounts in its unadjusted trial balance

Question

1. A company had the following items and amounts in its unadjusted trial balance as of December 31 of the current year:

                                                                                                                                                         Debit                          Credit

Cash sales                                                                                                                                                                      88,000

Credit sales                                                                                                                                                                     275,000

Accounts receivable                                                                                                                  96,000

Allowance for doubtful accounts                                                                                                                                   1,000

Prepare the adjusting entry to estimate bad debts under each of the following separate situations.

1. Bad debts are estimated to be 2.5% of credit sales.

2. An aging analysis estimates that 8%  of the outstanding accounts receivable will be uncollectible.

Explanation / Answer

Hi,

Please find the answer as follows:

Part 1:

Bad Debts Expense (275000*2.5%) Dr. 6875

Allowance for Doubtful Accounts Cr. 6875

Part 2:

Outstanding Balance = 96000*.08 = 7680 - 1000(already available credit) = 6680

Bad Debts Expense Dr. 6680

Allowance for Doubtful Accounts Cr. 6680

Thanks.

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