12.A trial balance before adjustment included the following: Debit Credit Accoun
ID: 2423713 • Letter: 1
Question
12.A trial balance before adjustment included the following:
Debit Credit
Accounts receivable $120,000
Allowance for doubtful accounts 730
Sales $510,000
Sales returns and allowances 8,000
Prepare the necessary journal entry (in T-account format) assuming that the estimate of uncollectibles is determined by taking 5% of gross accounts receivable
Explanation / Answer
(1) five percent of gross accounts receivable,
When using percentage of receivables as a basis for estimating uncollectible accounts, the CREDIT balance in Allowance for Doubtful Accounts AFTER the adjustment must equal the amount that is estimated to be uncollectible.
120,000 x 5% = 6000 Estimated to be uncollectible
6000 - 730 = 5270
Dr Bad Debt Expense 5270
Cr Allowance for Doubtful Accounts 5270
Allowance for Doubtful Accounts now has a credit balance of 6000
one percent of net sales.
When using percentage of Net Sales as a basis, the current balance in Allowance for Doubtful Accounts is ignored.
(510,000 - 8,000) x 1% = 5020
Dr Bad Debt Expense 5020
Cr Allowance for Doubtful Accounts 5020
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