Accounts receivable Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business. Bad debt expense: Bad debt expense is an expense account. The amounts of loss incurred from extending credit to the customers are recorded as bad debt expense. In other words, the estimated uncollectible accounts receivable are known as bad debt expense. Percentage-of-receivables basis: It is a method of estimating the bad debts (loss on extending credit), by multiplying the expected percentage of uncollectible with the total amount of receivables for a specific period. Allowance method: It is a method for accounting bad debt expense, where uncollectible accounts receivables are estimated and recorded at the end of particular period. Under this method, bad debts expenses are estimated and recorded prior to the occurrence of actual bad debt, in compliance with matching principle by using the allowance for doubtful account. To Prepare: The adjusting journal entry for recording the bad debt expense for the year. Given: Balance in allowance for doubtful accounts is a credit of $2,800, bad debt expense is 2% of accounts receivable, and accounts receivable of Company H is $400,000 at the end of the year

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Chapter 8, Problem 8.5BE

(a)

To determine

Accounts receivable

Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

Bad debt expense:

Bad debt expense is an expense account. The amounts of loss incurred from extending credit to the customers are recorded as bad debt expense. In other words, the estimated uncollectible accounts receivable are known as bad debt expense.

Percentage-of-receivables basis:

It is a method of estimating the bad debts (loss on extending credit), by multiplying the expected percentage of uncollectible with the total amount of receivables for a specific period.

Allowance method:

It is a method for accounting bad debt expense, where uncollectible accounts receivables are estimated and recorded at the end of particular period. Under this method, bad debts expenses are estimated and recorded prior to the occurrence of actual bad debt, in compliance with matching principle by using the allowance for doubtful account.

To Prepare: The adjusting journal entry for recording the bad debt expense for the year.

Given: Balance in allowance for doubtful accounts is a credit of $2,800, bad debt expense is 2% of accounts receivable, and accounts receivable of Company H is $400,000 at the end of the year

(b)

To determine

To Prepare: The adjusting journal entry for recording the bad debt expense for the year.

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