Shenzhen Co. uses the percentage-of-receivables basis to record bad debt expense. It estimates that 1% of accounts receivable will become uncollectible. Accounts receivable are £420,000 at the end of the year, and the allowance for doubtful accounts has a credit balance of £1,500. (a) Prepare the adjusting journal entry to record bad debt expense for the year. (b) If the allowance for doubtful accounts had a debit balance of £740 instead of a credit balance of £1,500, determine the amount to be reported for bad debt expense.
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.
- Shenzhen Co. uses the percentage-of-receivables basis to record
bad debt expense. It estimates that 1% of accounts receivable will become uncollectible. Accounts receivable are £420,000 at the end of the year, and the allowance for doubtful accounts has a credit balance of £1,500.
(a) Prepare the
(b) If the allowance for doubtful accounts had a debit balance of £740 instead of a credit balance of £1,500, determine the amount to be reported for bad debt expense.
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