The journal entry to establish an allowance for uncollectible accounts is as follows
Bad debt expense A/c Dr $15,060
To Allowance for doubtful debts $15,060
(Being bad debt allowance recorded)
The bad debt expense is calculated as shown below, as 6% of the accounts are proven uncollectible.
$251,000x 6/100
$2510x 6
=$15,060
In order to make the proper posting, we debited the bad debt expense and credited the allowance for doubtful debts account.
A bad debt expense is recognized when a receivable is no longer collectable as a result of a customer's inability to pay an outstanding debt due to bankruptcy or other financial troubles.
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