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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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McKinney & Co. estimates its uncollectible accounts as a percentage of credit sales. McKinney made credit sales of $1,500,000 in 2019. McKinney estimates 2.5% of its sales will be uncollectible. Prepare the journal entry to record bad debt expense for McKinney at the end of 2019.

To determine

Record the entry to record the bad expense.

Explanation

Accounts receivable:

Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

Bad debt expense:

Bad debt expense is an expense account. Amount of loss incurred from extending credit to the customers are recorded as bad debt expense. In other words, estimated uncollectible accounts receivable are known as bad debt expense. To match the revenues and expenses, bad debts (loss on extending credit) are recorded as expenses.

Prepare journal entries:

DateAccount Title and ExplanationDebitCredit
December 31,2019Bad debt expense (1)$37,500 
      Allowance for doubtful accounts  $37,500
 (To record the bad debts expense)  

Table (1)

  • Bad debt expense is a component of stockholders’ equity and it is increased...

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