Question

During the current Year, Bob’s Ceramics Shop had sales revenue of $150,000, of which $73,000 was on credit. At the start of the current year, Accounts Receivable showed a $20,000 debit balance, and the Allowance for Doubtful Accounts showed a $1,300 credit balance. Collections of accounts receivable during the current year amounted to $57,000. Data during the current year follows: a. On December 31, an Account Receivable (Toby’s Gift Shop) of $1,600 from a prior year was determined to be uncollectible; therefore, it was written off immediately as a bad debt. b. On December 31, on the basis of experience, a decision was made to continue the accounting policy of basing estimated bad debt losses on 2.0 percent of credit sales for the year. Required: 1. Prepare the required journal entries for the two items on December 31, end of the accounting period. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

Toby's Gift shop

Journal entries

December 31

Allowance for uncollectible accounts              Debit            $ 1,600

Accounts Receivables                                       Credit                            $ 1,600

To write off the bad debts expense from prior year.

December 31

Bad Debts expense                                           Debit          $ 1,460

Allowance for uncollectible accounts              Credit                            $ 1,460

Explanation:

Computations of bad debts expense

Credit sales for the period                                                      $ 73,000

Estimated bad debts losses at 2 % of credit sales

2 % of $ 73,000                                                                         $ 1,460

The accounting entry records the  bad debts expenses on the basis of the credit sales as per the accounting policy.

The allowance for uncollectible balance is not considered as the policy is to record bad debts expenses as a % of credit sales.

<u />