Martinez Company reports the following financial information before adjustments. Dr. Cr. Accounts Receivable $165,800 Allowance for Doubtful Accounts $3,730 Sales Revenue (all on credit) 840,900 Sales Returns and Allowances 52,650 Prepare the journal entry to record bad debt expense assuming Martinez Company estimates bad debts at (a) 5% of accounts receivable and (b) 5% of accounts receivable but Allowance for Doubtful Accounts had a $1,380 debit balance.

a. Debit Bad debt expense $4,560

Credit Allowance for doubtful debt $4,560

Being entries to recognize bad debt expense

b. Debit Bad debt expense $9,670

Credit Allowance for doubtful debt $9,670

Being entries to recognize bad debt expense

Explanation:

When a company makes sales on account, debit accounts receivable and credit sales. Based on assessment, some or all of the receivables may be uncollectible.

To account for this, debit bad debit expense and credit allowance for doubtful debt. Should the debt become uncollectible (i. e go bad), debit allowance for doubtful debt and credit accounts receivable.

Where a debit that had previously been determined to have gone bad gets settled, debit cash and credit bad debt expense.

Net sales

= $840,900 - $ 52,650

= $788,250

Allowance for doubtful debt

= 5% * $165,800

= $8,290

a. the difference to be posted

= $8,290 - $3,730

= $4,560

b. the difference to be posted

= $8,290 + $1,380

= $9,670