Answer:
- What amount should be debited to Bad Debts Expense, assuming 3% of outstanding accounts receivable
Dr Bad Debt Expense $ 1,941
Cr Allowance for Uncollectible Accounts $ 1,941
Explanation:
Initial Balance
Dr Accounts Receivable $ 97,400
Cr Allowance for Uncollectible Accounts $ 981
What amount should be debited to Bad Debts Expense,
assuming 3% of outstanding accounts receivable
Dr Bad Debt Expense $ 1,941
Cr Allowance for Uncollectible Accounts $ 1,941
FINAL Balance
Dr Accounts Receivable $ 97,400
Cr Allowance for Uncollectible Accounts $ 2,922
Bad accounts are those credits granted by the company and there is no possibility of being charged.
When customers buy products on credits but the company cannot collect the debt, then it's necessary to cancel the unpaid invoice as uncollectible.
One way is to directly cancel bad debts at the time it was decided that the credit is bad, the total amount reported as bad debt expenses negatively affect the income statement and the accounts receivable are reduced by the same amount, less assets.
The other way is to determine a percentage of the total amount of accounts receivable as bad debts, there are many ways to analyze accounts receivable and calculate the value of bad debts.
When the company has the percentage of uncollectible accounts, the required journal entry is Bad Expenses (debit) with Reserve for Bad Accounts (credit)
At the time of cancellation, since the expenses were recognized before, we only use the Allowance for Uncollectible Accounts (Debit) with accounts receivable (credit), with this we are recognizing the bad credit of the company.
