On Dec 31, 2007, before adjusting entries, the blances of selected accounts for the company were as follows:
Accounts receivable 840,000
Allowance for uncollectable accounts (debit balance) 2,000 dr.
The company has determined that historically about 2.0 percent of accounts receivable are never collected and uses this bases to determine it's bad debts provivion. Give the journal entry to record the companies estimated loss from uncollectible accounts on Dec 31.
I am totally lost. Could someone please help me out??
The allowance for uncollectible debts should be adjusted to 2% of 840,000, or 16,800. Since there was already a 2000 dollar debit balance in this category, 14,800 should be added to the estimated loss from debts.
I am not an accounting expdertr, so I do not guarantee that answer.
Of course, I'd be happy to help you with that!
To record the estimated loss from uncollectible accounts on December 31, you need to create an adjusting entry. This entry will adjust the balances of the accounts involved to reflect the estimated amount of bad debts.
Follow these steps to record the journal entry:
Step 1: Calculate the estimated loss from uncollectible accounts:
Given that historically about 2.0 percent of accounts receivable are never collected, you can calculate the estimated loss using the following formula:
Estimated Loss = Accounts Receivable * Percentage of Uncollectible Accounts
Estimated Loss = $840,000 * 2.0% = $16,800
Step 2: Determine the debits and credits:
The estimated loss increases the Allowance for Uncollectible Accounts, which has a debit balance. Therefore, you would debit the Allowance for Uncollectible Accounts account with the estimated loss.
Step 3: Record the journal entry:
The journal entry to record the estimated loss from uncollectible accounts on December 31 would be as follows:
Date: December 31, 2007
Debit: Allowance for Uncollectible Accounts - $16,800
Credit: Bad Debts Expense - $16,800
The debited amount is transferred to the Allowance for Uncollectible Accounts, increasing its balance to reflect the estimated loss. The credited amount is recorded as the company's estimate of bad debts expense for the year.
It's important to note that this is just an example based on the information provided. The actual journal entry may vary depending on specific circumstances or accounting policies of the company.
I hope this explanation helps! Let me know if you have any further questions.