Answer:
- Duncan Company estimates bad debts at
(a) 5% of accounts receivable
Dr Bad Debt Expense $ 3.000
Cr Allowance for Uncollectible Accounts $ 3.000
- (b) 5% of accounts receivable but Allowance for Doubtful Accounts had a $1,500 debit balance.
Dr Bad Debt Expense $ 6.500
Cr Allowance for Uncollectible Accounts $ 6.500
Explanation:
Initial Balance
Sales Revenue (all on credit) $ 900,000
Less: Sales Returns and Allowances $ 50,000
Estimates bad debts 5%
Dr Accounts Receivable $ 100,000
Cr Allowance for Doubtful Accounts $ 2,000
When the company estimates the bad debts, the journal entry is the loss to the income statement through the account Bad Debt Expense and the record in the Allowance for Uncollectible Accounts as a credit to deduct from Accounts Receivable in the Balance Sheet.
The entry it's less than the estimated value of 5% because the account "Allowance for Doubtful Accounts" had a balance of $2,000 on Credit.
Duncan Company estimates bad debts at
(a) 5% of accounts receivable
Dr Bad Debt Expense $ 3,000
Cr Allowance for Uncollectible Accounts $ 3,000
The new balance on Allowance for Doubtful Accounts as Debit of $1,500 means that when the entry of the adjustment is recorded it's necessary to compensate that value to show a debit balance of $5,000., because the Allowance for Doubtful Accounts must reflect a credit balance.
(b) 5% of accounts receivable but Allowance for Doubtful Accounts had a $1,500 debit balance.
Dr Bad Debt Expense $ 6,500
Cr Allowance for Uncollectible Accounts $ 6,500
Accounts Uncollectible are those credit that the company give and there are not chances of been collected.
When the customers buy products on credits but then the company can't collect the debt, then it's necessary to write off the unpaid bill as uncollectible.
One way it's to write-off directly the bad debts at the moment decided that the credit are uncollectible, the total amount it's reported as bad debt expenses which affect negativly the income statement and the accounts receivable are reduced in the same amount, less assets.
The other way it's to determine a percentage of total amount of accounts receivables as uncollectible, exist many ways to analize the accounts receivable and figure the value of uncollectible.
When the company have the percentage of uncollectible accounts the journal entry required is Bad Expenses (debit) with Allowance for Uncollectible Accounts (credit)
At the moment of the write-off as the expenses were before recognized we only use the Allowance for Uncollectible Accounts (Debit) with Accounts Receivable (Credit), with this we are recognizing the uncollectible credit of the company.
