Question

Trainor Company estimates bad debt expense using a percentage of credit sales (5%). The company began its current year with an $8,500 balance in the allowance account. During the current year, $10,500 of accounts receivable were written off, and $1,200 of previously written off accounts were collected. Credit sales for the year were $255,000.
The bad debt expense for the year was:

Answer 1

Answer:

The bad debt expense for the year was $13,550, recorded as follows:

Debit Bad debt expense                                     $13,550

Credit Allowance for doubtful accounts            $13,550

(To recognize bad debt expense for the year)

Explanation:

Bad debt expense is an estimated amount that is deemed uncollectible. Let's journalize the transactions in the question as follows:

Debit Allowance for doubtful accounts             $10,500

Credit Accounts receivable                                $10,500

(To record write-off of accounts receivable)

Debit Accounts receivable                                    $1,200

Credit Allowance for doubtful accounts               $1,200

(To re-establish accounts receivable previously written-off)

Debit Cash                                                              $1,200

Credit Accounts receivable                                   $1,200

(Being collection of accounts receivable previously written-off)

With the above adjustments, the balance in Allowance for doubtful accounts is $8,500 (assumed to be credit balance) -  $10,500 + $1,200 = $800 (debit)

Trainor Company estimates bad debt expense using a percentage of credit sales (5%). So, 5% x $255,000 = $12,750.

Therefore, the adjustment to Bad debt expense becomes: $12,750 + $800 = $13,550