Allowance Method of Accounting for Bad Debts Comparison of the Two Approaches
Kandel Company had the following data available for 2014 (before making any adjustments):
Accounts receivable, 12/31/14 $320,100 (Dr.)
Allowance for doubtful accounts 2,600 (Cr.)
Net credit sales, 2014 834,000 (Cr.)
Required
1. Prepare the journal entry to recognize bad debts under the following assumptions: (a) bad debts expense is expected to be 2% of net credit sales for the year and (b) Kandel expects it will not be able to collect 6% of the balance in accounts receivable at year-end.
2. Assume instead that the balance in the allowance account is a $2,600 debit. How will this affect your answers to part (1)?