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Shamrock Company reports the following financial information before adjustments. Dr. Cr. Accounts Receivable $154,900 Allowance for Doubtful Accounts $3,440 Sales Revenue (all on credit) 805,100 Sales Returns and Allowances 52,370 Prepare the journal entry to record bad debt expense assuming Shamrock Company estimates bad debts at (a) 4% of accounts receivable and (b) 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,580 debit balance.

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Answer:

The journal entries are as follows:

(a) Bad Debt expenses A/c Dr. $2,756

             To Allowance for Doubtful debts $2,756

(To record the bad debt expense)

Workings:

Bad debt expense = ($154,900 × 4%) - $3,440

                               = $6,196 - $3,440

                               = $2,756

(b) Bad Debt expenses A/c Dr. $7,776

             To Allowance for Doubtful debts $7,776

(To record the bad debt expense)

Workings:

Bad debt expense = ($154,900 × 4%) + $1,580 debit balance

                               = $6,196 + $1,580

                               = $7,776

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