Answer:
(a) 4% of accounts receivable
- Oriole Company estimates bad debts at (a) 4% of accounts receivable
Dr Bad Debt Expense $ 35,001
Cr Allowance for Uncollectible Accounts $ 35,001
- (b) 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,490 debit balance.
Dr Bad Debt Expense $ 39,801
Cr Allowance for Uncollectible Accounts $ 39,801
Explanation:
Initial Balance
Dr Accounts Receivable $ 130,100
Cr Allowance for Uncollectible Accounts $ 3,310
Sales Revenue (all on credit)
Dr Accounts Receivable $ 880,500
Cr Sales $ 880,500
Sales Returns and Allowances
Dr Sales Returns and Allowances $ 52,830
Cr Accounts Receivable $ 52,830
Oriole Company estimates bad debts at (a) 4% of accounts receivable
Dr Bad Debt Expense $ 35,001
Cr Allowance for Uncollectible Accounts $ 35,001
To register the adjustment of 4% of accounts receivables it's necessary considerate the values previously recorded in the account.
It means, CREDIT Balance $3,310 and to register the difference.
4% of accounts receivable but Allowance for Doubtful Accounts had a $1,490 debit balance.
Dr Allowance for Uncollectible Accounts $ 1,490
Dr Bad Debt Expense $ 39,801
Cr Allowance for Uncollectible Accounts $ 39,801
If the company applies the allowance method, it means that the account Allowance for Uncollectible Accounts must show as balance the % of accounts receivables as CREDIT.
Because the company has a debit balance in that account it's necessary to register an entry that compensate the DEBIT value and reflect A CREDIT estimated as % of account receivable.
FINAL Balance
Dr Accounts Receivable $ 957,770
Cr Allowance for Uncollectible Accounts $ 38,311
Bad accounts are those credits granted by the company and there is no possibility of being charged.
When customers buy products on credits but the company cannot collect the debt, then it's necessary to cancel the unpaid invoice as uncollectible."
One way is to directly cancel bad debts at the time it was decided that the credit is bad, the total amount reported as bad debt expenses negatively affect the income statement and the accounts receivable are reduced by the same amount, less assets
The other way is to determine a percentage of the total amount of accounts receivable as bad debts, there are many ways to analyze accounts receivable and calculate the value of bad debts.
When the company has the percentage of uncollectible accounts, the required journal entry is Bad Expenses (debit) with Reserve for Bad Accounts (credit)
At the time of cancellation, since the expenses were recognized before, we only use the Allowance for Uncollectible Accounts (Debit) with accounts receivable (credit), with this we are recognizing the bad credit of the company.
