Pincus Associates uses the allowance method to account for bad debts. During 2021, its first year of operations, Pincus provided a total of $267,000 of services on account. In 2021, the company wrote off uncollectible accounts of $10,700. By the end of 2021, cash collections on accounts receivable totaled $224,700. Pincus estimates that 15% of the accounts receivable balance at 12/31/2021 will prove uncollectible.

Required:

1. & 2. What journal entry did Pincus record to write off uncollectible accounts during 2021 and to recognize bad debt expense for 2021?

Journal entry worksheet

Record the write-offs of allowance for uncollectible accounts during 2021.

The journal entry Pincus recorded to write off uncollectible accounts during 2021:

Debit Allowance for uncollectible accounts $10,700

Credit Accounts receivable $10,700

The entry to recognize bad debt expense for 2021:

Debit Bad Debts Expense $15,440

Credit Allowance for uncollectible account $15,440

The write-offs of allowance for uncollectible accounts during 2021:

Debit Allowance for uncollectible accounts $10,700

Credit Accounts receivable $10,700

Explanation:

Pincus Associates uses the allowance method to account for bad debts.

The journal entry Pincus recorded to write off uncollectible accounts during 2021:

Debit Allowance for uncollectible accounts $10,700

Credit Accounts receivable $10,700

The accounts receivable balance at 12/31/2021 = services on account - wrote off uncollectible accounts - cash collections on accounts receivable = $267,000 - $10,700 - $224,700 = $31,600

Estimated uncollectible = 15% x $31,600 = $4,740

Before adjusting, Allowance for uncollectible accounts has balance of Debit $10,700

Bad debt expense = $4,740 + $10,700 = $15,440

The entry:

Debit Bad Debts Expense $15,440

Credit Allowance for uncollectible account $15,440

The write-offs of allowance for uncollectible accounts during 2021:

Debit Allowance for uncollectible accounts $10,700

Credit Accounts receivable $10,700