Answer :
Answer:
- (a) On December 10, a customer balance of $1,400 from a prior year was determined to be uncollectible
Dr Sales Returns and Allowances $ 1,400
Cr Accounts Receivable $ 1,400
- (b) On December 31, a decision was made to continue the accounting policy of basing estimated bad debt losses on 2 percent of credit sales for the year.
Dr Bad Debt Expense $ 752
Cr Allowance for Uncollectible Accounts $ 752
Explanation:
Initial Balance
Dr Accounts Receivable $ 12,000
Cr Allowance for Uncollectible Accounts $ 500
Kelly’s Camera Shop had sales revenue, of which $60,000 was on credit
Dr Accounts Receivable $ 60,000
Cr Sales $ 60,000
Collections of accounts receivable during 2018 amounted to $58,000.
Dr Cash $ 58,000
Cr Accounts Receivable $ 58,000
(a) On December 10, a customer balance of $1,400 from a prior year was
determined to be uncollectible, so it was written off.
Dr Allowance for Uncollectible Accounts $ 1,400
Cr Accounts Receivable $ 1,400
(b) On December 31, a decision was made to continue the accounting policy of basing estimated bad debt losses on 2 percent of credit sales for the year.
Dr Bad Debt Expense $ 752
Cr Allowance for Uncollectible Accounts $ 752
If the company applies the allowance method, it means that the account Allowance for Uncollectible Accounts must show as balance the % of accounts receivables as CREDIT.
Because the company has a debit balance in that account it's necessary to register an entry that compensate the DEBIT value and reflect A CREDIT estimated as % of account receivable.
The journal entries to give effect to the two transactions of Kelly's Camera Shop on December 31, 2018, are as follows:
Journal Entries:
a) Debit Allowance for Doubtful Accounts $1,400
Credit Accounts Receivable $1,400
- To write off the uncollectible account.
b) Debit Bad Debts Expenses $2,100
Credit Allowance for Doubtful Accounts $2,100
- To record the bad debts expense for the period.
What are bad debt losses?
Bad debt losses are the allowances made by the company given its inability to recover all the debts arising from credit sales.
Two methods are used to estimate the bad debt losses, including:
- Aging of receivables
- Estimating a percentage of credit sales or uncollectible accounts.
Two methods are used in recording the allowance for doubtful accounts:
- Using the allowance method
- Direct write-off method.
Data and Calculations:
Sales revenue in 2018 = $120,000
Credit sales in 2018 = $60,000
Accounts Receivable beginning balance = $12,000
Allowance for Doubtful Accounts = $500 credit
Cash collections during the year = $58,000
a) Account written off $1,400
b) Estimated bad debts loss = $1,200 (2% of $60,000)
Data Analysis:
a) Allowance for Doubtful Accounts $1,400 Accounts Receivable $1,400
b) Bad Debts Expenses $2,100 Allowance for Doubtful Accounts $2,100
Allowance for Doubtful Accounts
Account Titles Debit Credit
Beginning balance $500
Accounts Receivable $1,400
Bad Debts Expense $2,100
Ending balance $1,200
Totals $2,600 $2,600
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