Assume that October's credit sales were $35,000. In the space below record the journal entry for the provision for uncollectible accounts under each of the following independent assumptions:
a. The Allowance for Doubtful Acccounts before adjustment has a credit balance of $500.
b. The Allowance for Doubtful Accounts before adjustment has a debit balance of $250.
c. Uncollectible accounts expense is estimated at 2% of sales.
Identifying and journalizing Closing Entries Klein Photography
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a. Assuming the Allowance for Doubtful Accounts before adjustment has a credit balance of $500, the journal entry for the provision for uncollectible accounts can be recorded as follows:
Date Account Debit Credit
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Adjusting Entry:
[Month End]
October | Bad Debt Expense $700
| Allowance for Doubtful Accounts $700
Explanation:
When the Allowance for Doubtful Accounts has a credit balance, it indicates that there were previously estimated bad debts that were higher than the actual amount of bad debts. To adjust the account, we need to increase the allowance by the required amount. In this case, we assume that the provision is $700. Therefore, we debit the Bad Debt Expense account to increase the expense and credit the Allowance for Doubtful Accounts to increase the allowance.
b. Assuming the Allowance for Doubtful Accounts before adjustment has a debit balance of $250, the journal entry for the provision for uncollectible accounts can be recorded as follows:
Date Account Debit Credit
-------------------------------------------------------------------
Adjusting Entry:
[Month End]
October | Bad Debt Expense $850
| Allowance for Doubtful Accounts $850
Explanation:
When the Allowance for Doubtful Accounts has a debit balance, it indicates that there were previously estimated bad debts that were lower than the actual amount of bad debts. To adjust the account, we need to increase the allowance by the required amount. In this case, we assume that the provision is $850. Therefore, we debit the Bad Debt Expense account to increase the expense and credit the Allowance for Doubtful Accounts to increase the allowance.
c. Assuming uncollectible accounts expense is estimated at 2% of sales, the journal entry for the provision for uncollectible accounts can be recorded as follows:
Date Account Debit Credit
-------------------------------------------------------------------
Adjusting Entry:
[Month End]
October | Bad Debt Expense $700
| Allowance for Doubtful Accounts $700
Explanation:
In this case, we estimate the provision for uncollectible accounts based on a percentage of credit sales. Since the credit sales in October were $35,000, and we estimate that 2% of sales will be uncollectible, the provision will be $700. Therefore, we debit the Bad Debt Expense account to increase the expense and credit the Allowance for Doubtful Accounts to increase the allowance.