Question

Assume the following information for Skysong Corp. $151,000 Accounts receivable (beginning balance) Allowance for doubtful accounts (beginning balance) 11,370 Net credit sales 932,000 918,000 Collections Write-offs of accounts receivable 5,600 Collections of accounts previously written off 2,100 Uncollectible accounts are expected to be 7% of the ending balance in accounts receivable. Prepare the entries to record sales and collections during the period. (Credit account titles are automatically indented when the amount is entered. Do not indent manually) Account Titles and Explanation Credit Debit 932000 Accounts Receivable Sales Revenue 932000 (To record sales on account) 918000 Cash Accounts Receivable 918000 (To record collection of accounts receivable)

Answer 1

1. Journal entries to record sales & collections:

Date	Description	Debit	Credit
a	Accounts receivable	932000
	Sales revenue		932000
	(to record sales on account)
b	Cash	918000
	Accounts receivable		918000
	(to record collections)

2. Journal entry to write off the uncollectible accounts:

Date	Description	Debit	Credit
c	Allowance for doubtful debts	5600
	Accounts receivable		5600

3. Journal entry to record recovery of uncollectible accounts:

Date	Description	Debit	Credit
d	Accounts receivable	2100
	Allowance for doubtful debts		2100
	(to reverse write off of accounts receivable)
e	Cash	2100
	Accounts receivable		2100
	(to record collection of accounts receivable)

4. Calculation of ending balance in accounts receivable:

Ending balance in accounts receivable = Beginning balance + Net credit sales - Collections - Accounts receivable written off

Ending balance in accounts receivable = $151000 + $932000 - $918000 - $5600

Ending balance in accounts receivable = $159400

5. Calculation of unadjusted balance in allowance for doubtful accounts:

Unadjusted balance in allowance for doubtful accounts = Beginning balance - Accounts receivable written off + Collection of accounts receivable written off previously.

Unadjusted balance in allowance for doubtful accounts = $11370 - $5600 + $2100

Unadjusted balance in allowance for doubtful accounts = $7870

6. Calculation of Bad debt expense:

Bad debt expense is the allowance made in the current year for doubtful accounts. We will calculate the estimated uncollectible accounts for the current year and then deduct the balance available in the unadjusted allowance for doubtful accounts to arrive at current years' bad debt expense.

Estimated uncollectible accounts = 7% * Ending balance of accounts receivable

Estimated uncollectible accounts = 7% * $159400 = $11158

Bad debt expense = Estimated uncollectible accounts - Unadjusted balance in allowance for doubtful accounts

Bad debts expense = $11158 - $7870 = $3288

Journal entry for bad debt expense:

Date	Description	Debit	Credit
	Bad debt expense	3288
	Allowance for doubtful acounts		3288
	(for recording bad debt expense of current year)

Ending adjusted balance in allowance for doubtful accounts is the allowance made in the current year i.e. $11158.