At the beginning of the year, Mitchum Enterprises allows for estimated uncollectible accounts of $21,400. By the end of the year, actual bad debts total $25,000.Required:1. Record the write-off to uncollectible accounts.
Question
At the beginning of the year, Mitchum Enterprises allows for estimated uncollectible accounts of 25,000.Required:1. Record the write-off to uncollectible accounts.
Solution
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At the beginning of the year, Mitchum Enterprises would have recorded the estimated uncollectible accounts in their books as follows:
Debit: Bad Debt Expense 21,400
This entry recognizes the estimated uncollectible accounts as an expense and creates a contra asset account (Allowance for Doubtful Accounts) to show this estimation.
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By the end of the year, the actual bad debts total $25,000. This means that the estimation was lower than the actual amount. The company would need to adjust their books to reflect the actual bad debts. The entry would be:
Debit: Allowance for Doubtful Accounts 3,600 Credit: Accounts Receivable $25,000
This entry removes the estimated uncollectible accounts from the Allowance for Doubtful Accounts, recognizes the additional bad debt expense, and reduces the Accounts Receivable to reflect the actual uncollectible amount.
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