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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

Martel Co. has $320,000 in Accounts Receivable on December 31, 20-1, the end of its first year of operations. The business is new, so it has no prior experience with uncollectible accounts. In Martel’s overall industry, the percentage of uncollectible accounts receivable is about 3%. For companies similar to Martel in size and operations, the percentage is about 5%. Martel decides to use the overall industry experience as the basis for its estimate of uncollectible accounts.

Prepare the adjusting entry on December 31, 20-1 for Martel Co.’s uncollectible accounts.

To determine

Prepare the adjusting entry to record the uncollectible accounts for M Company on December 31, 20-1.

Explanation

Allowance method:

It is a method for accounting bad debt expense, where uncollectible accounts receivables are estimated and recorded at the end of particular period. Under this method, bad debts expenses are estimated and recorded prior to the occurrence of actual bad debt, in compliance with matching principle, by using the allowance for doubtful account.

Prepare the adjusting entry to record the uncollectible accounts for M Company on December 31, 20-1.

DateParticularsDebitCredit
December 31, 20-1Bad debt expense$9,600 
    Allowance for doubtful accounts  $9,600
 (To record the estimate amount for uncollectible accounts)  

Table (1)

Working note 1:

Calculate the amount of uncollectible accounts...

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