Ask Question
15 January, 05:09

Gonzalez Company has been in business for several years. At the end of the current year, the ledger shows:

Accounts Receivable $327,400 Dr.

Sales Revenue 2,136,500 Cr.

Allowance for Doubtful Accounts 7,900 Cr.

Bad debts are estimated to be 5% of accounts receivable. Prepare the entry to adjust Allowance for Doubtful Accounts.

+2
Answers (1)
  1. 15 January, 05:11
    0
    Debit : Bad Debts = $16,370

    Credit : Allowance for doubtful debts = $16,370

    Explanation:

    The question states that bad debts are expected to be 5% of the accounts receivables. This means that it is: $327,400 x 5% = $16,370.

    An account for allowance for doubtful debts is a contra account created, predicting that certain debtors will not be able to pay for the goods and services they purchased. The 5% may be based on historical experiences. Doubtful debts aren't officially uncollectible, it is simply a prediction, but bad debts are, where you have officially written off a certain accounts receivable as uncollectible.

    An allowance for doubtful debts is recorded in the balance sheet, directly under accounts receivables. Bad debts are recorded as an expense in the income statement.

    The initial entry for allowance for doubtful debts is incorrect, hence it would have to be corrected before the new amount can be recorded. Correction:

    Debit : Allowance for doubtful debts = $7900

    Credit : Bad debts = $7900

    The accounts will be cancelled off and the new entry can be recorded ...

    Debit : Bad Debts = $16,370

    Credit : Allowance for doubtful debts = $16,370

    When the amount is officially declared uncollectible, the allowance for doubtful debts account will be debited and the accounts receivables account will be credited.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Gonzalez Company has been in business for several years. At the end of the current year, the ledger shows: Accounts Receivable $327,400 Dr. ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers