Bad Debt(000) 200920082007Sales37,50030,00023,000Bad debt of sales3%2.75%2.5%Estimated debt expense1,125825575Actual debt of sales2.5%2.5%2.5%Actual debt expense937.5750575Difference187.5075.000.00 Products Returns(000) 20092008Sales37,50030,000Returns of sales1%1%Estimated returns375300Actual return of sales0.5%0.5%Actual return187.5150Difference187.50150.00 Warranties(000) 20092008Sales37,50030,000Warranties of sales1%1.00%Estimated debt expense375300Actual warranties of sales0.5%0.5%Actual warranties expense187.5150Difference187.50150.00What are the journal entries to set up each reserve and then charge against that reserve?

Question
Asked Dec 2, 2019
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Bad Debt

(000)

 

2009

2008

2007

Sales

37,500

30,000

23,000

Bad debt of sales

3%

2.75%

2.5%

Estimated debt expense

1,125

825

575

Actual debt of sales

2.5%

2.5%

2.5%

Actual debt expense

937.5

750

575

Difference

187.50

75.00

0.00

 

Products Returns

(000)

 

2009

2008

Sales

37,500

30,000

Returns of sales

1%

1%

Estimated returns

375

300

Actual return of sales

0.5%

0.5%

Actual return

187.5

150

Difference

187.50

150.00

 

Warranties

(000)

 

2009

2008

Sales

37,500

30,000

Warranties of sales

1%

1.00%

Estimated debt expense

375

300

Actual warranties of sales

0.5%

0.5%

Actual warranties expense

187.5

150

Difference

187.50

150.00

What are the journal entries to set up each reserve and then charge against that reserve?

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Expert Answer

Step 1

In the year 2007, the estimated bad debts are equal to the actual bad debts. On the date of balance sheet, bad debt expense will be written off against the allowance for doubtful debt. Therefore, bad debt expense a/c will be debited and allowance for doubtful debt a/c will be credited. The allowance for doubtful debt will be adjusted against the accounts receivable. Therefore, the allowance for doubtful debt will be debited and accounts receivable a/c will be debited.  

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Accounts Title & Explanation Post ref. Debit(S) Credit(S Year 2007 Bad Debt expense A/c Allowance for doubtful debts A/c (Record of charging bad debts against reserve for doubtful debts) $575 $575 2007 Allowance for doubtful debts A/c Accounts receivable A/c |(Record of cancellation of allowance for doubtful debts) $575 $575

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Step 2

In the year 2008, the estimated bad debts are more than the actual bad debts. Therefore, on the date of balance sheet, bad debt expense will be written off against the allowance of doubtful debt. Thus, bad debt expense a/c will be debited and allowance for doubtful debt a/c will be credited. The allowance of doubtful debt a/c will be debited and accounts receivable a/c will be credited.

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Accounts Title & Explanation Post ref. Debit(S) |Credit(S) Year Bad Debt expense A/c Allowance of doubtful debt A/c (Record of charging bad debts against reserve for doubtful debts) 2008 $825 $825 2008 Allowance for doubtful debts A/c Accounts receivable A/c (Record of cancellation of allowance for doubtful debts) $750 $750

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Step 3

In the year 2009, the estimated bad debts are more than actual bad debts. Therefore, on the date of balance sheet, bad debt expense will be written off against the allowance of doubtful debt. Thus, ba...

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Accounts Title & Explanation |Post ref. Debit(S) Credit(S) $1,125 Year 2009 Bad Debt expense A/c Allowance of doubtful debt A/c (Record of charging bad debts against reserve for doubtful debts) $1,125 2009 Allowance for doubtful debts A/c Accounts receivable A/c Record of cancellation of allowance for doubtful debts) $938 $938

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