Question

Credit Losses Based on Credit Sales Gregg Company uses the allowance method for recording its expected credit losses. It estimates credit losses at three percent of credit sales, which were $900,000 during the year. On December 31, the Accounts Receivable balance was $150,000, and the Allowance for Doubtful Accounts had a credit balance of $12,200 before adjustment. a. Prepare the adjusting entry to record the credit losses for the year b. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear in the December 31 balance sheet. a. General Journal Date Description Dec.31 Bad Debts Expense Allowance for Doubtful Accounts To record allowance for credit losses. Debit 18,000 x O Credit 0 18,000 x b. (Do not use negative signs with your answers) Current Assets: Accounts Receivable Less: Allowance for Doubtful Accounts $ $ ✓ 150,000 30,200 x 119,800 X $

Answer 1

a) Estimated credit losses for the year is = Credit sales * 3% of credit sales Estimated credit losses for the year is = (900000*3%) Estimated credit losses for the year is = $ 27,000/. Balance already in allowance for Doubtful accounts is = $ 12,200/. Adjustment to be made for S 14,800 now for allowance for Doubtful accounts Journal entries :- Date Accounts Title & Explanation Debit $ Credits 31-Dec Bad debt expenses 14,800 To Allowance for Doubtful accounts 14,800 (Entry for recording of Estimated bad debt expense as credit losses) b) Presentation in Balance Sheet :- Particulars Amounts Current assets : Accounts Receivable Less: Allowance for Doubtful accounts 150,000 27,000 123,000