At the end of the first year of operations, Mayberry Advertising had accounts receivable of $20,400. Management of the company estimates that 11% of the accounts will not be collected. What adjusting entry would Mayberry Advertising record to establish Allowance for Uncollectible Accounts?
Question
At the end of the first year of operations, Mayberry Advertising had accounts receivable of $20,400. Management of the company estimates that 11% of the accounts will not be collected. What adjusting entry would Mayberry Advertising record to establish Allowance for Uncollectible Accounts?
Solution
To establish the Allowance for Uncollectible Accounts, Mayberry Advertising would need to calculate 11% of the total accounts receivable.
Step 1: Calculate the estimated uncollectible amount 2,244
Step 2: Record the adjusting entry The adjusting entry would be a debit (increase) to Bad Debt Expense for $2,244 and a credit (increase) to Allowance for Uncollectible Accounts for the same amount.
The journal entry would look like this:
Bad Debt Expense 2,244
This entry recognizes that a portion of the accounts receivable is expected to be uncollectible.
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