Writing off a Bad Debt
During 2013, Kahului Kid’s
Clothes wrote off two uncollectible accounts:
Receivable of $3,200 from Wailuku Slipper Shop (original sale in 2012),
which went out of business in 2013.
Receivable of $2,100 from Pukulani Pansit House (original sale in 2013),
which was closed by the Health Department in 2013.
Prepare the adjusting entry
Allowance for Doubtful Accounts
Example of Allowance Method
Sungka Mancala Game Company
At the start of 2013, the Sungka Mancala Game Company had a debit
balance in Accounts Receivable of $5,360 and a credit balance in the
Allowance for Doubtful Accounts of $300.
During 2013, Sungka Mancala had sales revenue of $70,000, of
which $25,000 was on credit.
Collections of accounts receivable during 2013 amounted to
On December 31, 2013, on the basis of experience, a decision was
made to continue the accounting policy of basing estimated bad
debt losses on 2.5 percent of credit sales for the year.
On December 31, 2013, an Account Receivable of $700 from a prior
year was determined to be uncollectible; therefore, it was written
off immediately as a bad debt.