Can you answer my accounting question?

Question

Allowance for doubtful accounts at December 31, 2003 $ 8,000
Credit sales during 2004 400,000
Accounts receivable deemed worthless and written off during 2004 9,000

As a result of a review and aging of accounts receivable in early January 2005, however, it has been determined that an allowance for doubtful accounts of $9,500 is needed at December 31, 2004. What amount should I record as "bad debt expense" for the year ended December 31, 2004?

Answer 1

Accounts receivable deemed worthless and written off during 2004 $9,000. It's not stated whether this write-off was taken directly to the income statement or through the allowance a/c. I'll take these 2 scenarios 1 at a time.

Assuming the $9k was taken straight to income statement, the entry would be:
Dr Bad debt expense $9,000
Cr A/cs receivable $9,000
this means the allowance bal. of $8k was untouched and brought forward to 2004. If you need an allowance bal. of $9,500, you only need to
Dr Bad debt expense $1,500
Cr Allowance for doubtful a/cs $1,500
Your total bad debt expense would be $10,500.

Assuming the $9k went through the allowance a/c, at the time it was written off, the entry would have been:
Dr Bad debt expense $1,000
Dr Allowance for doubtful a/cs $8,000
Cr A/cs receivable $9,000
leaving a zero balance in the allowance a/c.
Now when you need the allowance bal. to be $9,500, you'd need to:
Dr Bad debt expense $9,500
Cr Allowance for doubtful a/cs $9,500
The bad debt expense for 2004 would still be $10,500. The only difference is that the journal entries are slightly different.

Answer 2

I'm assuming that you ment an aging of receivables was done early in January of 2004, not 2005. If you ment something different here, ignore this answer.

An adjustment to the allowance for doubtful accounts was made on Dec. 31, 2003,resulting in a credit balance of 8,000. in the allowance account.

During the year, 9,000. was written off by:

dr to allowance for doubtful accounts 9,000.
cr to the appropriate accounts receivable 9,000.

This would have left a debit balance of 1,000. in the allowance for doubtful accounts.

When using the aging of receivables, the amount determined to be in the allowance account must be exactly that.

In order to have a 9,500. balance, we must expense 10,500. on Dec. 31, 2004.

Entry:

dr bad debt expense 10,500.
cr allowance for doubtful accounts 10,500.

When the debit of 1,000. is subtracted from 10,500., the balance in the allowance account will be 9,500.

So, 10,500. is your answer.

Note:
If using the percentage of sales method, you ignore any balance in the allowance account and expense whatever your percent of sales equals. Therefore, your balance in the allowance account may not be what your estimate was.

Answer 3

this is how the Allowance for Doubtful Accounts move:

Beg, Allowance for DA
Add: Bad Debt Expense
Recovered AR (previously written-off)
Less: Write-Off
Equals: End, Allowance for DA

With the info given, we have to squeeze-out the figure for the bad debt expense:

Beg DA 8,000
Add: bad debt Expense ?
Less: Write-off (9,000)
Equals: End DA 9,500

to fill-in the missing figure: 8,000+10,500-9,000=9,500.

answer is 10,500.

this is the balance sheet approach as you see the Required Allowance Balance was emphasized.

The Credit Sales amount has to be disregarded as far as bad debt computation is concern since there is also no mention on the Percentage of bad debt to be estimated against Credit sales.