Answer:
- Assuming 15% of accounts receivable, the journal entry:
Dr Bad Debt Expense $ 15,440
Cr Allowance for Uncollectible Accounts $ 15,440
Explanation:
- Pincus estimates that 15% of the accounts receivable
Initial Balance
Dr Accounts Receivable $ 267,000
- The company wrote off uncollectible accounts
Dr Allowance for Uncollectible Accounts $ 10,700
Cr Accounts Receivable $ 10,700
- Cash collections on accounts receivable
Dr Cash $ 224,700
Cr Accounts Receivable $ 224,700
Dr Accounts Receivable $ 31.600
- Assuming 15% of accounts receivable, the journal entry:
Dr Bad Debt Expense $ 15.440
Cr Allowance for Uncollectible Accounts $ 15.440
Dr Accounts Receivable $ 31.600
Cr Allowance for Uncollectible Accounts $ 4.740
If the company applies the allowance method, it means that the account Allowance for Uncollectible Accounts must show as balance the 15% 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 15% of account receivable.
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.
