Question

Borke Company has a credit balance of $3,000 in Allowance for Doubtful Accounts. The estimated bad debt expense under the percentage-of-sales basis is $4,100. The total estimated uncollectibles under the percentage-of-receivables basis is $5,800. Prepare the adjusting entry under each basis. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Answer 1

Answer:

Under the percentage-of-sales basis, adjusting entry required

Debit Bad debt expenses $1,100

Credit Allowance for doubtful debt  $1,100

Under the percentage-of-receivables basis, adjusting entry required

Debit Bad debt expenses $2,500

Credit Allowance for doubtful debt  $2,500

Explanation:

When a company makes sales on account, debit accounts receivable and credit sales. Based on assessment, some or all of the receivables may be uncollectible.  

To account for this, an allowance is created by passing a debit to bad debit expense and a corresponding credit allowance for doubtful debt. Should the debt become uncollectible (i.e go bad), debit allowance for doubtful debt and credit accounts receivable.

Under the percentage-of-sales basis, additional amount to be allowed

= $4,100 - $3,000

= $1,100

Under the percentage-of-receivables basis, additional amount to be allowed

= $5,800 - $3,000

= $2,500