Credit Losses Based on Credit Sales Lewis Company uses the allowance method for recording its expected credit losses. It estimates credit losses at 5% of credit sales which were $900,000 during the year. On December 31, the Accounts Receivable balance was $150,000 and the Allowance for Doubtful Accounts had a credit balance of $20,200 before adjustment. a. Prepare the adjusting entry to record the credit losses for the year

Question

Ryan Fischer

Business

16 September, 02:04

Credit Losses Based on Credit Sales Lewis Company uses the allowance method for recording its expected credit losses. It estimates credit losses at 5% of credit sales which were $900,000 during the year. On December 31, the Accounts Receivable balance was $150,000 and the Allowance for Doubtful Accounts had a credit balance of $20,200 before adjustment. a. Prepare the adjusting entry to record the credit losses for the year

+4

Answers (1)

Know the Answer?

Nicky · Answer 1

The adjusting entry to record the credit losses is shown below:

Bad debt expense A/c Dr $45,000

To Allowance for doubtful debts $45,000

(Being bad debt is recorded)

The credit loss computation is shown below:

= Credit sales * estimated percentage

= $900,000 * 5%

= $45,000

For recording this transaction, we debited the expense account and credited the contra asset account.