Dr. Bad Debt Expense 162,500; Cr. Allowance for Bad Debts 162,500
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
![The unadjusted trial balance of ABC Company on December 31, 2019, end of its first year of operation,
showed among others: Accounts Receivable, P1,250,000 and Cash Sales, P4,560,000.
Among its transactions for the year 2020 are the following:
a. Sales on account, P5,500,000
b Total collections during the year, P3,500,000
c. The management adopted a policy of providing for doubtful accounts based on 5% of the
outstanding receivable at the end of the year.
What is the adjusting journal entry on December 31, 2020 in recognizing bad debt expense?
Select the correct response:
Dr. Bad Debt Expense 62,500; Cr. Allowance for Bad Debts 62,500
Dr. Bad Debt Expense 100,000; Cr. Allowance for Bad Debts 100,000
Dr. Bad Debt Expense 275,000; Cr. Allowance for Bad Debts 275,000
Dr. Bad Debt Expense 162,500; Cr. Allowance for Bad Debts 162,500](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8f6fdf8f-dcd8-40b8-8f5f-24ae71b5103d%2F81cbc510-bb9c-4286-bc0c-1c89485040ad%2Fg7xzfw_processed.jpeg&w=3840&q=75)
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