Answer:
Determine its bad debt expense for 2020. Bad debt expense for 20
Cr Bad Debt Expense $ 524 - Credit, which means a profit in the income statement.
Allowance for Uncollectible Accounts Balance
$ 4,380 - $524 = $ 3,856
Explanation:
December 31, 2020
Dr Accounts receivable $ 48,200
Cr Allowance for Uncollectible Accounts $ 4,380
Net Credit Sales $ 1,253,200
Buffalo Company estimates its bad debt expense to be 8% of gross accounts receivable.
Determine its bad debt expense for 2020. Bad debt expense for 20
Dr Allowance for Uncollectible Accounts $ 524
Cr Bad Debt Expense $ 524
Allowance for Uncollectible Accounts Balance
$ 4,380 - $524 = $ 3,856
The allowance for uncollectible Accounts must reflect as balance the value estimated as bad debts, which is 8% of gross accounts receivable. $48,200*0,08 = $3,856
If the company applies the allowance method, it means that the account Allowance for Uncollectible Accounts must show as balance the % estimated of accounts receivables as CREDIT, if the company had balances that differ from that value then it must be adjusted to the new estimated value.
Bad accounts are those credits granted by the company and there is no possibility of being charged.
"When customers buy products on credits but the company cannot collect the debt, then it's necessary to cancel the unpaid invoice as uncollectible."
One way is to directly cancel bad debts at the time it was decided that the credit is bad, the total amount reported as bad debt expenses negatively affect the income statement and the accounts receivable are reduced by the same amount, less assets
The other way is to determine a percentage of the total amount of accounts receivable as bad debts, there are many ways to analyze accounts receivable and calculate the value of bad debts.
When the company has the percentage of uncollectible accounts, the required journal entry is Bad Expenses (debit) with Allowance for Uncollectible Accounts (credit)
At the time of cancellation, since the expenses were recognized before, we only use the Allowance for Uncollectible Accounts (Debit) with accounts receivable (credit), with this we are recognizing the bad credit of the company.
