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13 May, 02:31

The Accounts Receivable balance for Clark , Inc. at December 31, 2017 , was $ 24 comma 000. During 2018 , Clark earned revenue of $ 457 comma 000 on account and collected $ 323 comma 000 on account. Clark wrote off $ 6 comma 100 receivables as uncollectible. Industry experience suggests that uncollectible accounts will amount to 6 % of accounts receivable.

Assume Gold had an unadjusted $1,900 credit balance in Allowance for Bad Debts at December 31. 2018. Journalize Gold's December 31, 2018, adjustment to record bad debts expense using the percent-of-receivables method.

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  1. 13 May, 02:46
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    Debit Bad debt expense $13,314

    Credit Allowance for doubtful account $13,314

    (To record bad debt expense)

    Explanation:

    The following transactions took place in 2018:

    Debit Accounts receivable $457,000

    Credit Sales revenue $457,000

    (To record sales revenue on account)

    Debit Cash $323,000

    Credit Accounts receivable $323,000

    (To record collection on account)

    Debit Allowance for doubtful account $6,100

    Credit Accounts receivable $6,100

    (To record write-off of accounts receivable)

    The net impact of the above journals on accounts receivable is $24,000 + $457,000 - $323,000 - $6,100 = $151,900.

    6% of $151,900 = $9,114. However, the write-off would reduce the allowance account as follows: $1,900 - $6,100 = $4,200 debit balance, the required bad debt expense would be $9,114 + $4,200 = $13,314. The addition is necessary in order to reinstate the allowance account to $9,114. The required adjustment is recorded under the answer section.
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