Uncollectible Accounts—Percentage of Sales
Ryan's Express has total credit sales for the year of $178,000 and estimates that 3% of its credit sales will be uncollectible. Record the end-of-period adjusting entry on December 31, in general journal form, for the estimated uncollectible accounts. Assume the following independent conditions existed prior to the adjustment:
To record the end-of-period adjusting entry for estimated uncollectible accounts on December 31, you need to follow these steps:
1. Determine the amount of estimated uncollectible accounts: Calculate 3% of the total credit sales for the year. In this case, 3% of $178,000 would be $5,340.
2. Identify the accounts to be affected: The estimated uncollectible accounts need to be recorded in the allowance for doubtful accounts, which is a contra-asset account.
3. Prepare the adjusting journal entry: Since this is the adjusting entry, it will affect both the income statement and the balance sheet. The entry should be made in the general journal using the following format:
Date Account Debit Credit
-------------------------------------------------------------------------
Dec 31 Bad Debt Expense $5,340
Allowance for Doubtful $5,340
4. Explanation of the entry:
- The debit to Bad Debt Expense represents the expense incurred during the period due to the estimated uncollectible accounts.
- The credit to Allowance for Doubtful Accounts increases the balance in this contra-asset account, which reduces the net accounts receivable on the balance sheet. This allowance represents the estimated amount that will not be collected.
By following these steps and recording the adjusting entry, Ryan's Express will accurately reflect the estimated uncollectible accounts at the end of the accounting period.
To record the end-of-period adjusting entry for the estimated uncollectible accounts on December 31, you need to follow these steps:
1. Determine the estimated uncollectible amount: Multiply the total credit sales by the estimated percentage of uncollectible accounts.
Estimated uncollectible amount = Total credit sales * Estimated percentage of uncollectible accounts
In this case, the estimated uncollectible amount is:
Estimated uncollectible amount = $178,000 * 3% = $5,340
2. Debit the uncollectible accounts expense: This account represents the expense incurred due to the anticipated uncollectible accounts.
Debit: Uncollectible Accounts Expense for $5,340
3. Credit the allowance for doubtful accounts: This account represents the estimated uncollectible accounts receivable and helps in presenting a more accurate value of accounts receivable on the balance sheet.
Credit: Allowance for Doubtful Accounts for $5,340
The general journal entry on December 31, to record the estimated uncollectible accounts, would be as follows:
Date | Account | Debit | Credit
December 31 | Uncollectible Accounts Expense | $5,340 |
December 31 | Allowance for Doubtful Accounts | | $5,340