The following information relates to Excellent Inc. for the year 2021: Sales for 2021 (90% on credit): $7,000,000 Accounts receivable as at Dec. 31, 2021: $275,000 Allowance for doubtful accounts as at Jan. 1, 2021: $8,000 CR Excellent estimates its bad debt expense during the year as 0.2% of net credit sales. On June 15, 2021, Excellent unexpectedly collected $4,500 of a previously written-off account. Excellent has a December 31 year end. Required: a. Record the journal entries for: i. The collection of the previously written-off account on June 15; ii. Bad debt expense for the year. b. After the journal entries from a) had been completed, management reviewed the balance in the allowance for doubtful accounts and determined that it should be 5% of gross accounts receivable. Prepare the adjusting journal entry required.
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 following information relates to Excellent Inc. for the year 2021:
Sales for 2021 (90% on credit): $7,000,000
Allowance for doubtful accounts as at Jan. 1, 2021: $8,000 CR
Excellent estimates its
Required:
a. Record the journal entries for:
i. The collection of the previously written-off account on June 15;
ii. Bad debt expense for the year.
b. After the journal entries from a) had been completed, management reviewed the balance in the allowance for doubtful accounts and determined that it should be 5% of gross accounts receivable. Prepare the
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