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Shore Co. provides for doubtful accounts based on 4% of credit sales. The following data are available for 2014.

Credit sales during 2014 $2,422,900

Allowance for doubtful accounts 1/1/14 18,100

Collection of accounts written off in prior years (customer credit was reestablished) 9,200

Customer accounts written off as uncollectible during 2014 31,500

What is the balance in Allowance for Doubtful Accounts at December 31, 2014?

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Answer:

The balance in Allowance for Doubtful Accounts at December 31, 2014 is $96,916 and the required bad debt expense is $101,116, journalized as follows:

Debit Bad debt expense                                    $101,116

Credit Allowance for doubtful accounts           $101,116

(To record bad debt expense for the year)

Explanation:

Let's journalize the transactions that occurred in 2014 as follows:

Debit Accounts receivable                           $2,422,900

Credit Sale revenue                                      $2,422,900

(To record sales on account)

Debit Accounts receivable                                   $9,200

Credit Allowance for doubtful accounts              $9,200

(To re-eastblish sales on account previously written off)

Debit Cash                                                             $9,200

Credit Accounts receivable                                  $9,200

(To record collections on account previously written off)

Debit Allowance for doubtful accounts               $31,500

Credit Accounts receivable                                  $31,500

(To write-off accounts receivable that is uncollectible)

Since Shore Co. adopts 4% of credit sales. This translates to 4% x $2,422,900 = $96,916. The effects of the journals above on the opening balance of the allowance for doubtful accounts is $18,100 + $9,200 - $31,500 = $4,200 (debit). Bad debt expense is therefore $101,116 ($4,200 + $96,916).

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