Rutta company records its allowance for doubtful accounts based on 1.5% of annual credit sales. if credit sales for the current year were 10,000,000 what would be the journal entry
To determine the journal entry for recording the allowance for doubtful accounts, we first need to calculate the amount of the allowance based on the given information.
The allowance for doubtful accounts is typically calculated as a fixed percentage of annual credit sales. In this case, the percentage is 1.5%.
Step 1: Calculate the allowance for doubtful accounts:
Allowance for Doubtful Accounts = Credit Sales * Allowance Percentage
= $10,000,000 * 0.015
= $150,000
Now that we have the amount of the allowance, we can proceed to the journal entry.
The journal entry would be recorded as follows:
Debit: Bad Debt Expense $150,000
(to recognize the estimated amount of credit sales that will not be collected)
Credit: Allowance for Doubtful Accounts $150,000
(to establish the reserve for potential bad debts)
Please note that the journal entry may vary depending on the specific accounting policies and practices of the Rutta company. It is always recommended to consult with a professional accountant or review the company's financial policies for accurate journal entry recording.