Question

CC Sunglasses started operations in 2017. During the year, there was $10,000 in sales, $8,000 was collected, therefore $2,000 remaining AR. On December 31, 2017, CC Sunglasses Co. estimates 7% of receivables may not be collected.
The journal entry to record the 2017 estimate for bad debts is ___.

Answer 1

Answer: The journal entries to record the 2017 estimate for bad debts is Debit Bad debt expense $140; Credit Allowance for doubtful accounts $140.

Explanation: Given that the amount in accounts receivable is $2,000, after the collections, CC Sunglasses Co. estimates that 7% of this amount may not be collected. Therefore, 7% of $2,000 is $140. And the accounting entries to recognize this bad debt expense is as provided in the Answer section above. However, the net balance in the accounts receivable would be $1,860 ($2,000 - $140), to show the realizable value as at December 31, 2017.