Question

g:At year-end (December 31), Chan Company estimates its bad debts as 0.20% of its annual credit sales of $650,000. Chan records its Bad Debts Expense for that estimate. On the following February 1, Chan decides that the $325 account of P. Park is uncollectible and writes it off as a bad debt. On June 5, Park unexpectedly pays the amount previously written off. Prepare Chan's journal entries for the transactions.

Answer 1

The journal entries are shown below:

On December 31

Bad debt expense Dr  $130,000       ($650,000 × 0.20%)

      To Allowance for doubtful debts  $130,000

(Being the bad debt expense is recorded)      

On Feb 01

Allowance for doubtful debts Dr $325

     To Account receivable $325

(Being the written off amount is recorded)

On June 5

Account receivable $325

      To Allowance for doubtful debts Dr $325

(Being the written off amount is recorded)

On June 5

Cash Dr $325

  To Account receivable $325

(Being the cash received is recorded)