A company has gross accounts receivable totaling $150,000. The...

Question

A company has gross accounts receivable totaling $150,000. The company uses the aging-of-receivables method to estimate the allowance for doubtful accounts. The company estimates that the amount of uncollectible receivables will be $3,600. Currently, the allowance for doubtful accounts has a debit balance of $800. What is the journal entry to record this year's bad debt expense?

Accepted Answer

Let's try this one now. Hopefully you guys gave it a shot. A company has gross accounts receivable totaling a 150,000. Remember, when they say gross accounts receivable, that's just in the accounts receivable account. Okay. Without considering bad debt in there. So the total amount, a 150,000 and the company uses the aging of receivables method to estimate the allowance for doubtful accounts. So knowing that they use aging of receivables, we know that the problem is gonna give us the ending balance and we're gonna have to back into the bad debt expense. That's how the aging method works. So the company estimates that the amount of uncollectible receivables will be 36100. Notice they told us straight up, They said there's a 150,000 in receivables and we expect 36100 to be uncollectible. That means our ending balance in the in the allowance should be 36100. So they didn't give us an aging schedule here or anything, right? They just gave us the results of the aging schedule, 36100. So let's go ahead and make our allowance for doubtful accounts t account. Okay. It tells us currently the allowance for doubtful accounts has a debit balance of 800. Again, don't get tripped up if it has a debit balance. That just means we wrote off more accounts than we estimated. Okay. There was more write offs than we first estimated. So it has a debit balance of 800 here. Right? Usually, it would have a credit balance is what we want it to have or what we would expect it to have. So after we make this journal entry, it will have a credit balance. Right? Especially because we know that we want the final balance in the account to be a $36100 credit balance right here. Right. We want it to be 36100 uncollectible. So how do we get there? Well, we have to take our bad debt expense entry. Whoops. On the wrong side there. Right? We when we do our bad debt expense entry, it's gonna credit the allowance. Right? It's a credit to the allowance that that brings up that credit balance. So what number could have got us there? So notice we had a debit balance to begin with of 800, right? So a debit balance of 800 but a credit balance to finish of 36100. So there's gonna have to be some number that gets rid of the debit balance and then on top of that, gets us to that credit balance. So what we have to do is actually add these two numbers together. Right? That'll be some number that'll be big enough to get rid of this 800 and then be left over with 36100. So we do 36100 +800 equals 44100. Right? And when you see this, you know, sometimes it's easier to just do it as an algebraic equation, but I like the visual of using the t account and seeing hey, we're gonna need some credit that's bigger than 36100 clearly. Right? If there's a debit balance right now, we're gonna need to credit it some number more than 36100 to get it to 36100. And that's exactly it. 36100 plus the 800. That 44100, that is our bad debt expense. Okay. That would be this x right here. 44100. So we would end up making a journal entry for bad debt that would debit bad debt expense for 44100, credit allowance for doubtful accounts for 44100, and that would get us to our ending balance of 36100. Right? So if we were to take this, this right here, what we calculated was 44100 right there and you'll see that that the credits minus the debits get us to that final credit balance that we wanted. Cool? So there's our journal entry to record the bad debt expense. The bad debt expense is 44100 and the ending balance is 36100 in the allowance. Cool? Let's go ahead and move on to the next video.

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