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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Correcting an Erroneous Write-Off

The new bookkeeper at Karlin Construction Company was asked to write off two accounts totaling $1,710 that had been determined to be uncollectible. Accordingly, he debited Accounts Receivable for $1,710 and credited Bad Debt Expense for the same amount.

Required:

1. Determine what was wrong with the bookkeeper’s entry assuming Karlin uses the allowance method.

2. Give both the entry he should have made and the entry required to correct his error.

To determine

(a)

Uncollectible accounts:

These are those accounts which reflect that amount of credit sales which is not to be collected i.e. bad debts.

Allowance Method:

It is a method of recognizing the bad debt before its actual occurrence i.e. on estimation basis. In this method, the bad debt is recorded in the books at the time of sale of the goods on making an estimate about the bad debt as per the past records.

The wrong with the bookkeeper’s entry journal entry for the defaulted account.

Explanation

The Karlin Construction’s bookkeeper wrongly accounted the bad debt expense of $1,710 by debiting the receivables and crediting the bad debt expense. This is given in the question.

The correct treatment here is the following entries:

Date Particulars Debit ($) Credit ($)
Bad debt expense
Allowance for Doubtful accounts
To determine

(b)

Uncollectible accounts:

These are those accounts which reflect that amount of credit sales which is not to be collected i.e. bad debts.

Allowance Method:

It is a method of recognizing the bad debt before its actual occurrence i.e. on estimation basis. In this method, the bad debt is recorded in the books at the time of sale of the goods on making an estimate about the bad debt as per the past records.

The journal entries for the accounting of bad debt and correction.

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