Pharoah Company uses the percentage-of-receivables basis to record bad debt expense and concludes that 2% of accounts receivable will become uncollectible. Accounts receivable are $473,000 at the end of the year, and the allowance for doubtful accounts has a credit balance of $2,940.
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.
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![Pharoah Company uses the
percentage-of-receivables basis to record bad debt expense and concludes that 2% of
accounts receivable will become uncollectible. Accounts receivable are $473,000 at the end of the year, and the
allowance for doubtful accounts has a credit balance of $2.940.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fff36f8f7-c1af-4d2c-887e-9ba0e314c4fb%2F421977c8-4326-48b2-bc52-aa17e1665265%2Ff42u5d_processed.jpeg&w=3840&q=75)
![If the allowance for doubtful accounts had a debit balance of $920 instead of a credit balance of $2,940, prepare
the adjusting journal entry for bad debt expense. (Credit account titles are automatically indented when
amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the
account titles and enter 0 for the amounts.)
Account Titles and Explanation
eTextbook and Media
Debit
Credit](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fff36f8f7-c1af-4d2c-887e-9ba0e314c4fb%2F421977c8-4326-48b2-bc52-aa17e1665265%2F0hhjxtf_processed.jpeg&w=3840&q=75)
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