During the current year, Witz Electric, Inc., recorded credit sales of $880,000. Based on prior experience, it estimates a 2 percent bad debt rate on credit sales. Required: Prepare journal entries for each transaction: (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) a. On September 29 of the current year, an account receivable for $2,500 from March of the current year was determined to be uncollectible and was written off. b. The appropriate bad debt expense adjustment was recorded for the current year.
a. Journal Entry on September 29:
Date Account Debit Credit
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Sep 29 Allowance for Doubtful Accounts $2,500
Accounts Receivable $2,500
Explanation:
We are writing off the uncollectible account receivable of $2,500 from March of the current year, which means it is no longer considered an asset as it is unlikely to be collected. We will reduce the allowance for doubtful accounts and also decrease the accounts receivable.
b. Journal Entry for Bad Debt Expense Adjustment:
Date Account Debit Credit
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Year-end Bad Debt Expense $17,600
Year-end Allowance for Doubtful Accounts $17,600
Explanation:
Based on prior experience and the estimation of a 2% bad debt rate on credit sales of $880,000, we need to adjust the bad debt expense account and the allowance for doubtful accounts. The estimated bad debt expense is $17,600 (2% of $880,000), which will increase the bad debt expense account. We will also increase the allowance for doubtful accounts because we need to reflect the estimated uncollectible amounts.