1. Determine bad debt expense. 2. Prepare the journal entry to record bad debt expense. If an amount box does not require an entry, leave it blank. - Select - - Select - - Select - - Select - (Record adjusting entry for bad debt expense estimate)
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Glencoe Supply had the following accounts receivable aging schedule at the end of a recent year.
| Accounts Receivable Age |
Amount |
Proportion Expected to Default |
Allowance Required |
|||
| Current | $310,500 | 0.005 | $1,553 | |||
| 1–30 days past due | 47,500 | 0.01 | 475 | |||
| 31–45 days past due | 25,000 | 0.13 | 3,250 | |||
| 46–90 days past due | 12,800 | 0.20 | 2,560 | |||
| 91–135 days past due | 6,100 | 0.25 | 1,525 | |||
| Over 135 days past due | 4,200 | 0.60 | 2,520 | |||
| $11,883 |
The balance in Glencoe's allowance for doubtful accounts at the beginning of the year was $58,620 (credit). During the year, accounts in the total amount of $62,400 were written off.
Required:
1. Determine bad debt expense.
2. Prepare the journal entry to record bad debt expense. If an amount box does not require an entry, leave it blank.
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3. If Glencoe had written off $90,000 of receivables as uncollectible during the year, how much would bad debt expense reported on the income statement have changed?
Balance in allowance for doubtful accounts after write off:
= $62,400 - $58,620
= $3,780 (Debit)
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