Chapter B, Problem 1P

### College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570

Chapter
Section

### College Accounting (Book Only): A ...

13th Edition
Scott + 1 other
ISBN: 9781337280570
Textbook Problem

# Rogan Company’s total sales on account for the year amounted to $327,000. The company, which uses the allowance method, estimated bad debts at 1 percent of its credit sales.RequiredJournalize the following selected entries:2017Dec. 31 Record the adjusting entry.2018Mar. 2 Write off the account of A. M. Billson as uncollectible,$584.June 6    Write off the account of W. H. Gilders as uncollectible, $492.Check FigureAdjusting entryamount,$3,270

To determine

Prepare the journal entries for Company R.

Explanation

Allowance method of accounting for bad debts expense: This is the accounting method used to estimate the bad debts based on an estimated percentage of credit sales, and recognize the bad debts expense in the same period the products are sold on account (period in which accounts receivables is created for).

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

• Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
• Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Prepare the journal entries for Company R.

Transaction on December 31, 2017:

 Date Account Titles and Explanation Post Ref. Debit ($) Credit ($) 2017 December 31 Bad Debts Expense 3,270 Allowance for Doubtful Accounts 3,270 (Record uncollectible accounts expense)

Table (1)

Description:

• Bad Debts Expense is an expense account. Since expenses and losses decrease the equity and an increase in equity is debited, so, Bad Debts Expense account is debited.
• Allowance for Doubtful Accounts is a contra-asset account to Accounts Receivable account. The contra-asset accounts decrease the asset value, and a decrease in asset is credited.

Working Notes:

Bad debts expense = Credit sales×Uncollectible percentage=$327,000×1%=$3,270

Transaction on March 2, 2018:

 Date Account Titles and Explanation Post Ref. Debit ($) Credit ($) 2018 March 2 Allowance for Doubtful Accounts 584 Accounts Receivable 584 (Record the write off of accounts receivable that is worthless)

Table (2)

Description:

• Allowance for Doubtful Accounts is a contra-asset account to Accounts Receivable account. The account is debited to write off the receivable and reverse the effect of allowance value of the doubtful account which was previously credited.
• Accounts Receivable is an asset account. Since the receivable is written off, the value of asset is decreased, and a decrease in asset is credited.

Transaction on June 6, 2018:

 Date Account Titles and Explanation Post Ref. Debit ($) Credit ($) 2018 June 6 Allowance for Doubtful Accounts 492 Accounts Receivable 492 (Record the write off of accounts receivable that is worthless)

Table (3)

Description:

• Allowance for Doubtful Accounts is a contra-asset account to Accounts Receivable account. The account is debited to write off the receivable and reverse the effect of allowance value of the doubtful account which was previously credited.
• Accounts Receivable is an asset account. Since the receivable is written off, the value of asset is decreased, and a decrease in asset is credited.

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