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 the estimated uncollectible accounts, follow these steps:
1. Determine the amount of estimated uncollectible accounts:
- Calculate the uncollectible percentage by multiplying the total credit sales by the estimated percentage: $178,000 x 3% = $5,340.
- This means that Ryan's Express estimates $5,340 of its credit sales will be uncollectible.
2. Identify the general journal accounts affected:
- The two accounts involved in this adjusting entry are "Uncollectible Accounts Expense" (an expense account) and "Allowance for Doubtful Accounts" (a contra-asset account).
3. Determine the direction of the adjustment:
- Since this is an adjusting entry, we need to increase the expense account and create an allowance for doubtful accounts to reflect the estimated uncollectible accounts.
4. Record the adjusting entry on December 31:
- In the general journal form, the entry would be as follows:
Date: December 31
Account Debit Credit
-----------------------------------
Uncollectible Accounts Expense $5,340
Allowance for Doubtful Accounts ₊$5,340
- In this entry, the Uncollectible Accounts Expense account is debited to increase the expense, and the Allowance for Doubtful Accounts is credited by the same amount to establish an allowance for the estimated uncollectible accounts.
Note: The adjusting entry records the estimated uncollectible accounts, which represents the company's anticipation of potential losses from customers who may not pay their outstanding credit sales.