At year-end (December 31), Chan Company estimates its bad debts as 0.30% of its annual credit sales of $779,000. Chan records its Bad Debts Expense for that estimate. On the following February 1, Chan decides that the $390 account of P. Park is uncollectible and writes it off as a bad debt. On June 5, Park unexpectedly pays the amount previously written off. Prepare the journal entries for these transactions.

Answer and Explanation:

The journal entries are as follows

On December 31

Bad debt expense Dr $2,337 ($779,000 * 0.30%)

To Allowance for doubtful debts $2,337

(Being the estimated bad debt expense is recorded)

For recording this we debited the bad debt expense as it increased the expenses and credited the allowance as it decreased the assets

On Feb 01

Allowance for doubtful debts Dr $390

To Account receivable $390

(Being the written off amount is recorded)

For recording this we debited the allowance as it increased the allowance and credited the account receivable as it decreased the assets

On June 5

Account receivable $390

To Allowance for doubtful debts Dr $390

(Being the uncollected amount is recorded)

For recording this we debited the account receivable as it increased the assets and credited the allowance as it decreased the assets

On June 5

Cash Dr $390

To Account receivable $390

(Being the cash received on account is recorded)

For recording this we debited the cash as it increased the assets and credited the account receivable as it decreased the assets