Swifty Company reports the following financial information before adjustments. Dr. Cr. Accounts Receivable $136,200 Allowance for Doubtful Accounts $3,670 Sales Revenue (all on credit) 813,600 Sales Returns and Allowances 54,790 Prepare the journal entry to record bad debt expense assuming Swifty Company estimates bad debts at (a) 4% of accounts receivable and (b) 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,360 debit balance.

(a) Debit Bad Debt Expense for $1,778; and Credit Allowance for Doubtful Accounts for $1,778.

(b) Debit Bad Debt Expense for $6,808; and Credit Allowance for Doubtful Accounts for $6,808.

Explanation:

(a) Company estimates bad debts at 4% of accounts receivable

Estimated bad debt = Accounts Receivable * 4% of accounts receivable = $136,200 * 4% = $5,448

Bad Debt Expense = Estimated bad debt - Allowance for Doubtful Accounts = $5,448 - $3,670 = 1,778

The journal entries will now look as follows:

Particulars                                                Debit ($)           Credit ($)  

Bad Debt Expense                                     1,778

Allowance for Doubtful Accounts                                       1,778

(To record bad debt expense.)                                                            

(b) Company estimates bad debts at 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,360 debit balance.

Bad debt expense = (Accounts Receivable * 4% of accounts receivable) + Allowance for Doubtful Accounts debit balance = ($136,200 * 4%) + $1,360 = $6,808

The journal entries will now look as follows:

Particulars                                                Debit ($)           Credit ($)    

Bad Debt Expense                                     6,808

Allowance for Doubtful Accounts                                       6,808

(To record bad debt expense.)