Question

In this module, you will learn how to estimate and report the effects of uncollectible accounts. Under Generally Accepted Accounting Principles, or GAAP companies must use the allowance method to account for uncollectibles. This method involves the following steps: 1. Estimate and record uncollectibles with an end-of-period adjusting journal entry that increases Bad Debt Expense (debit) and increases the Allowance for Doubtful Accounts (credit). 2. Identify and write off specific customer balances in the period that they are determined to be uncollectible. The adjusting entry (in 1) reduces Net Income as well as Net Accounts Receivable. The write-off (in 2) has offsetting effects on Accounts Receivable and the Allowance for Doubtful Accounts, ultimately yielding no net effect on Net Accounts Receivable or on Net Income. Aging of Accounts Receivable Method - Subsequent Years Number of Days Unpaid 31-60 61-90 $ 200 $ 100 Over 90 0-30 $ 400 Total $ 700 2,300 189,000 6,00 $12,000 $ 2,300 3,700 Customer Adam's Sports Momentum Clothes Others Inot shown to save space Zoom Athletics Total Accounts Receivable Estimated Uncollectible Estimated Uncollectible ($) 37.900 97,500 4,000 $13,000 5 49,800 2,000 $52.000 x 100 $ 38,000 x 200 $6,000 x 40 244 $.040 $ 5,200 $ 7,600 $2,400 Allowance for Doubtful Accounts Desired Ending Balance AFDA - 2.000 Beg. Bal 15.240 BDE Desired Ending Balance AFDA $17,240 Less Existing Balance (2.000) Equals Bad Debt Expense $15,240 17,240 Desired Ending Balance Knowledge Check 01 Knelling Company reported a balance in Accounts Receivable of $50,000 and a credit balance of $3,000 in the Allowance for Doubtful Accounts. The company's aging of accounts receivable determined $12,000 to be uncollectible. Prepare the end-of-period adjusting entry to record bad debt expense. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) View transaction list Journal entry worksheet < 1 > Record the bad debt expense. Note: Enter debits before credits. Transaction General Journal Debit Credit A

Answer 1

	Transaction	General Journal	Debit	Credit
	A	Bad Debt Expense	$ 9,000
		Allowance for doubtful accounts		$ 9,000
		(To Record Bad debt expense)
	*Allowance to be created = 12,000-3,000=9,000