Question

Nunn Co.'s allowance for uncollectible accounts was $380,000 at the end of 2020 and $360,000 at the end of 2019. For the year ended December 31, 2020, Nunn reported bad debt expense of $62,000 in its income statement. What amount did Nunn debit to the appropriate account in 2020 to write off actual bad debts

Answer 1

Answer:

Debit : Allowance for doubtful debts - $62,000

Explanation:

An account for allowance for doubtful debts is a contra account created, predicting that certain debtors will not be able to pay for the goods and services they purchased. This can be based on historical experiences. Doubtful debts aren’t officially uncollectible, it is simply an estimation made, but bad debts are, where you have officially written off a certain accounts receivable as uncollectible.

An allowance for doubtful debts is recorded in the balance sheet, directly under accounts receivables. Bad debts are recorded as an expense in the income statement.

The question states that the company had recorded $62,000 as a bad debts expense in its income statement. In order to do this, the company would have first made an estimate of bad debts known as the allowance for doubtful debts where:

Debit : Bad Debts

Credit : Allowance for doubtful debts

When the amount is officially declared uncollectible as in this case, the allowance for doubtful debts account will be debited with $62,00 and the accounts receivables account will be credited with $62,000 meaning that the money would not be expected to be received from that debtor anymore.