If Allowance for Doubtful Accounts has a debit balance of 22

If Allowance for Doubtful Accounts has a debit balance of $220 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 1% of net sales and (2) 7% of accounts receivable.

Solution

a. Date Account Titles and Explaination Debit Credit Dec-31 Bad debt expense $   2,500 Accounts Receivable $   2,500 b. Date Account Titles and Explaination Debit Credit 1 Dec-31 Bad debt expense $ 16,260 Allowance for Doubtful Accounts $ 16,260 2 Dec-31 Bad debt expense $ 11,200 Allowance for Doubtful Accounts $ 11,200 Workings: 1 2% of Net Sales Net Sales = Sales Revenue - Sales Return Net Sales = $8,42,000 - $29,000 = $8,13,000 Adjustment = Net Sales X 2% = $8,13,000 X 2% = $16,260 2 12% of Accounts Receivables 12% of Accounts Receivables = $1,20,000 X 12% =$14,400 Adjustment = 12% of Accounts Receivables - Credit balance = $14,400 - $3,200 =$11,200 c. Date Account Titles and Explaination Debit Credit 1 Dec-31 Bad Debt exoense $   8,130 Allowance for Doubtful Accounts $   8,130 2 Dec-31 Bad Debt exoense $   8,620 Allowance for Doubtful Accounts $   8,620 Workings: 1 1% of Net Sales Net Sales = Sales Revenue - Sales Return Net Sales = $8,42,000 - $29,000 = $8,13,000 Adjustment = Net Sales X 1% = $8,13,000 X 1% = $8,130 2 7% of Accounts Receivables 7% of Accounts Receivables = $1,20,000 X 7% = $8,400 Adjustment = 7% of Accounts Receivables + Debit balance = $8,400 + $220 = $8,620