A Company That Uses the Allowance Method to Account for Its

question 100

Essay

A company that uses the allowance method to account for its bad debts had credit sales of $740,000 in 2013,including a $720 sale to Linda Paul.On December 31,2013,the company estimated its bad debts at 1.5% of its credit sales.On June 1,2014,the company wrote off as uncollectible the $720 account of Linda Paul; and on December 21,2014,Linda Paul unexpectedly paid her account in full.Prepare the necessary journal entries (a) on December 31,2013,to reflect the estimate of bad debts expense; (b) on June 1,2014,to write off the bad debt; and (c) on December 21,2014,to record the unexpected collection.

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Definitions:

Credit Postings

Entries made on the credit side of an account, indicating an increase in liabilities, revenue, or equity and a decrease in assets.

Debit Postings

Entries made on the left side of a ledger account, indicating an increase in assets or expenses or a decrease in liabilities, equity, or revenue.

Account Balance

An account balance refers to the amount of money held in a financial repository, typically a bank account, at any given moment.

Painting Equipment

Assets used in the operation of a painting business or for painting activities, classified as long-term if they provide benefits over multiple periods.