Question

At year-end (December 31), Chan Company estimates its bad debts as 0.60% of its annual credit sales of $779,000. Chan records its Bad Debts Expense for that estimate. On the following February 1, Chan decides that the $390 account of P. Park is uncollectible and writes it off as a bad debt. On June 5, Park unexpectedly pays the amount previously written off. Prepare the journal entries for these transactions.

Answer 1

Explanation:

The journal entries are as follows

1.  Bad debt expense A/c Dr  $4,674         ($779,000 × 0.60%)

               To Allowance for doubtful debts $4,674

(Being bad debt expense is recorded)

2. Allowance for doubtful debts Dr $390

          To Account receivable $390

(Being the written off amount is recorded)

3. Account receivable $390

           To  Allowance for doubtful debts $390

4. Cash Dr $390

              To Account receivable $390

(Being the cash received is recorded)