The trial balance before adjustment of Estefan Inc. shows the following balances
ID: 2492837 • Letter: T
Question
The trial balance before adjustment of Estefan Inc. shows the following balances.
Dr. Cr.
Accounts Receivable $80,000
Allowance for Doubtful Accounts 1,750
Sales, Net (all on credit) $580,000
Instructions
Give the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of (a) 4% of gross accounts receivable and (b) 1% of net sales.
Explanation / Answer
(a) Provision for Doubtful Debts is 4% of Gross Accounts Receivable:
Gross Accounts Receivable = $80000
Provision for doubtful debts = $80000 * 4% = $3200
Provision already created = $1750
Provision to be created = $3200 - $1750 = $1450
Entry:
Allowance for Doubtful Accounts Dr $1450
To Accunts Receivable a/c $1450
(b) Provision for Doubtful Accounts is 1% of net Sales:
Net Sales = $580000
Provision for doubtful accounts = $580000 * 1% = $5800
Provision already created = $1750
Provision to be created = $5800 - $1750 = $4050
Entry:
Allowance for Doubtful Accounts a/c Dr $4050
To Accounts Recceivable a/c $4050
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