Duncan company reports the following financial information before adjustments. dr. cr. accounts receivable $100,000 allowance for doubtful accounts $2,000 sales revenue (all on credit) 900,000 sales returns and allowances 50,000 prepare the journal entry to record bad debt expense assuming duncan company estimates bad debts at (a) 5% of accounts receivable and (b) 5% of accounts receivable but allowance for doubtful accounts had a $1,500 debit balance. (if no entry is required, select "no entry" for the account titles and enter 0 for the amounts. credit account titles are automatically indented when the amount is entered. do not indent manually.)

Dr Bad Debt Expense                            $ 3.000

Cr Allowance for Uncollectible Accounts$ 3.000

Dr Bad Debt Expense                            $ 6.500

Cr Allowance for Uncollectible Accounts$ 6.500

Explanation:

Initial Balance  

Sales Revenue (all on credit)        $ 900,000

Less: Sales Returns and Allowances$ 50,000

Estimates bad debts5%

Dr Accounts Receivable                      $ 100,000

Cr Allowance for Doubtful Accounts$ 2,000

When the company estimates the bad debts, the journal entry is the loss to the income statement through the account Bad Debt Expense and the record in the Allowance for Uncollectible Accounts as a credit to deduct from Accounts Receivable in the Balance Sheet.

The entry it's less than the estimated value of 5% because the account "Allowance for Doubtful Accounts" had a balance of $2,000 on Credit.

Duncan Company estimates bad debts at   (a) 5% of accounts receivable  

Dr Bad Debt Expense                            $ 3,000

Cr Allowance for Uncollectible Accounts$ 3,000

The new balance on Allowance for Doubtful Accounts as Debit of $1,500 means that when the entry of the adjustment is recorded it's necessary to compensate that value to show a  debit balance of $5,000., because the Allowance for Doubtful Accounts must reflect a credit balance.

(b) 5% of accounts receivable but Allowance for Doubtful Accounts had a $1,500 debit balance.  

Dr Bad Debt Expense                            $ 6,500

Cr Allowance for Uncollectible Accounts$ 6,500

Accounts Uncollectible are those credit that the company give and there are not chances of been collected.

When the customers buy products on credits but then the company can't collect the debt, then it's necessary to write off the unpaid bill as uncollectible.

One way it's to write-off directly the bad debts at the moment decided that the credit are uncollectible, the total amount it's reported as bad debt expenses which affect negativly the income statement and the accounts receivable are reduced in the same amount, less assets.

The other way it's to determine a percentage of total amount of accounts receivables as uncollectible, exist many ways to analize the accounts receivable and figure the value of uncollectible.

When the company have the percentage of uncollectible accounts the journal entry required is Bad Expenses (debit) with Allowance for Uncollectible Accounts (credit)

At the moment of the write-off as the expenses were before recognized we only use the Allowance for Uncollectible Accounts (Debit) with Accounts Receivable (Credit), with this we are recognizing the uncollectible credit of the company.

answer; signaling;

the definition of a small business is an independently owned and operated company that is limited in size and in revenue depending on the industry. a local bakery that employs 10 people is an example of a small business. a manufacturing facility that employees less than 500 people is an example of a small business.