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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

UNCOLLECTIBLE ACCOUNTS-PERCENTAGE OF RECEIVABLES Charlie’s Chevy Sales and Service estimates the amount of uncollectible accounts using the percentage of receivables method. Based on aging the accounts, it is estimated that $3,935 will not be collected. Record the end-of-period adjusting entry on December 31, in general journal form, for the estimated uncollectible accounts. Assume the following independent conditions existed prior to the adjustment:

  1. 1. Allowance for Doubtful Accounts has a credit balance of $245.
  2. 2. Allowance for Doubtful Accounts has a debit balance of $560.

1.

To determine

Prepare the adjusting entry on December 31 to record the uncollectible accounts 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-receivables 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 receivables for a specific period. Under this method, the estimated bad debts would be treated as a target allowance balance.

Prepare the adjusting entry on December 31 to record the uncollectible accounts:

DateParticularsDebitCredit
December 31Bad debt expense (1)$3,690 
    Allowance for doubtful accounts  $3,690
 (To adjust the allowance for doubtful accounts and to record the bad expense)  

Table (1)

Working note 1:

Calculate the bad debt expense...

2.

To determine

Prepare the adjusting entry on December 31 to record the uncollectible accounts under each of the independent conditions.

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