Hey guys, I'm working on accounting homework for my online class but I'm stuck on this one question.

At year-end (December 31), Alvare Company estimates its bad debts as 0.5% of its annual credit sales of $875,000. Alvare records its Bad Debts Expense for that estimate. On the following February 1, Alvare decides that the $420 account of P. Coble is uncollectible and writes it off as a bad debt. On June 5, Coble unexpectedly pays the amount previously written off.


Prepare the journal entries of Alvare to record these transactions and events of December 31, February 1, and June 5. (Omit the "$" sign in your response.)

What are the bad debts expense for debit and the allowance for doubtful accounts for credit? According to the example problem the amounts should match. I followed the example problem and multiplied 8750000 by .05 but every time I try that answer, (43750) it tells me I am wrong. I don't get what I'm missing here. Thank you!

I'm not sure exactly what you're asking, however 0.5% of 875,000 is 4375.

Now, the provision for bad debts is a provision. If there is an increase or decrease in the provision the difference is put in the Income Statement. If there is an increase in provision, it is an expense. If there is a decrease in provision, it is revenue.

The new total figure is deducted from the debtors from the Statement of Financial Position.

Bad debts is a certified expense, therefore you record it as an expense in the Income statement, following the accruals and prudence concept. Bad debts are also deducted from debtors in the Income Statement.

If the previously thought bad debts is repaid, then you do not include it as an expense in the profit and loss, since the debt has been repaid. You correct the debtors figure accordingly.

Like I said, I'm not sure what you're asking, but these are the principles you should abide with.

Isn't there usually homework forums for this type of thing O_o

Ok I got what you're asking, I'll show you the journal entries soon. Gimme a moment I need to make my protein shake lol.

Ok here it is. Note that this is the method in Malta. There are some differences in say the american system.

Dec 31
Dr p/l 4375
Cr provn 4375


Feb1
Dr bed debts 420
Cr debtor 420

Dr p/l 420
Cr bad debts 420


June 5
Dr debtor 420
Cr bad debts recovered 420

Dr cash 420
Cr debtor 420

Dr bad debts recovered 420
Cr bad debts 420 or Cr p/l (same thing since the bad debts balance will still be transferred to the p/l at the end of the year)

Oh dear, this thread brings back bad memories.

lol

I actually have totally forgotten how to open the accounts for bad debts. I mean after all these years I just do it like a robot when I draft the income statement or balance sheet.