On December 31, 2018, the balance in Megan's Products Accounts Receivable was $680,000 and net credit sales amounted to $3,800,000 during 2018. An aging analysis of the accounts receivable indicated that $40,000 in accounts are expected to be uncollectible. Prepare the adjusting entries to record estimated bad debt expense using the percentage-of-receivables basis under each of the following independent assumptions:

Answer and Explanation:

The Journal entry is shown below:-

a. Bad Debt Expense Dr, $36,800            ($40,000 – $3,200)

                    To Allowance for Doubtful Accounts $36,800

(Being the bad debt expense is recorded)

For recording this we debited the bad debt expense as it increased the expenses and at the same time it reduced the assets so the allowance for doubtful accounts is credited

b. Bad Debt Expense Dr, $40,730          ($40,000 + $730)

     To Allowance for Doubtful Accounts $40,730

For recording this we debited the bad debt expense as it increased the expenses and at the same time it reduced the assets so the allowance for doubtful accounts is credited

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