Question

BB Company had the following partial information in its trial balance at the end of 2015: 5. Allowance for Doubtful Accounts ($4,000, Credit Balance) Accounts Receiva ble ($120,000) Sales ($200,000) BB company uses allowance method of providing for uncollectible debts. Required: A. Assuming the company uses sales as the basis for providing for doubtful accounts, make necessary entries to provide for doubtful accounts using an estimate of 1% of sales. A. What is the balance in the allowance for doubtful accounts after your adjusting entry you made in requirement A? B. Assuming one of the customers owing $1,000 is determined not to be able to pay and it has been approved for the account to be written off, make necessary entries for the write-off of this account. Assuming the customer, whose account has already been written off in requirement C paid $600 of the amount previously written off, make necessary entries for this transaction. C.

Answer 1

Provision for doubtful accounts for the year 2015 = 1% of sales 2015 = 1% of $200,000 = $2,000

Adjustment entry:

Accounts	Debit	Credit
Bad Debts	$2,000
Allowance for Doubtful Accounts		$2,000

A. Balance in allowance for doubtful accounts after the above adjusting entry = $4,000 + $2,000 = $6,000

B. As the amount is determinable to be written off, therefore, the accounts receivable balance will be written off by $1,000 and the allowance will be reduced by the same amount.

Adjustment entry:
Accounts	Debit	Credit
Allowance for Doubtful Accounts	$1,000
Accounts Receivable		$1,000

C. When a bad debt is recovered from a customer whose account has been written off, then the amount will be transferred to the profit and loss account as it will be income for the company.

Adjustment entry:
Accounts	Debit	Credit
Cash	$600
Profit and loss account		$1,000