Chapter 16, Problem 2SEB

### College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

Chapter
Section

### College Accounting, Chapters 1-27

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

# UNCOLLECTIBLE ACCOUNTS-PERCENTAGE OF SALES Nicole’s Neckties has total credit sales for the year of $380,000 and estimates that 2% of its credit sales will be uncollectible. Record the end-of-period adjusting entry on December 31, in general journal form, for the estimated bad debt expense. Assume the following independent conditions existed prior to the adjustment: 1. Allowance for Doubtful Accounts has a credit balance of$430. 2. Allowance for Doubtful Accounts has a debit balance of $295. 1. To determine Prepare the adjusting entry on December 31 to record the bad debt expense under each of the independent conditions. Explanation Bad debt expense: Bad debt expense is an expense account. The amounts of loss incurred from extending credit to the customers are recorded as bad debt expense. In other words, the estimated uncollectible accounts receivable are known as bad debt expense. 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. Percentage-of-sales basis: It is a method of estimating the bad debts (loss on extending credit), by multiplying the expected percentage of uncollectible with the total amount of revenues for a specific period. Estimated bad debts would be treated as a bad debt expense of the particular period. Prepare the adjusting entry on December 31 to record the bad debt expense:  Date Particulars Debit Credit December 31 Bad debt expense (1)$7,600 Â Â Â Â  Allowance for doubtful accounts Â \$7,600 Â (To record the adjusting entry of bad debts expense) Â Â

Table (1)

Working note 1:

2.

To determine

Prepare the adjusting entry on December 31 to record the bad debt expense under each of the independent conditions.

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