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Colorado Rocky Cookie Company offers credit terms to its customers. At the end of 2018, accounts receivable totaled 625,000. The allowance method is used to account for uncollectible account. The allowance for uncollectible accounts had a credit balance of 32000 at the beginning of 2018 and 21000 in receivables were written off during the year as uncollectible. Also, 1200 in cash was received in December from a customer whose account previously had been written off. The company estimates bad debts by applying a percentage of 10% to account receivable at the end of the year.Prepare journal entries to record the write off of receivables, the collections of 1200 for previously written off receivables, and the year end adjusting entry for bad expense.

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Answer:

The Journal entries are as follows:

(i) Allowance for doubtful accounts      Dr.  $21,000

To Accounts receivables                                             $21,000

(To written of accounts receivables)

(ii) Accounts receivables A/c             Dr. $1,200

To Allowance for doubtful accounts                   $1,200

(To reinstate account previously written off)

(iii) Cash A/c                       Dr. $1,200

To Accounts receivables                     $1,200

(To record collection of accounts previously written off)

(iv) Bad debts Expense ($625,000×10% + $12,200) Dr. $50,300

To Allowance for doubtful accounts                                                $50,300                      

(To record bad debts expense)

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