The Dolton Sign Company uses the allowance method in accounting for uncollectible accounts. Past experience indicates that 6% of accounts receivable will eventually be uncollectible. Select account balances at December 31, 2006, and December 31, 2007, appear below:
12/13/2006 12/31/2007
Net Credit Sales $400,000 $500,000
Accounts Receivable 80,000 100,000
Allowance for Doubtful Account 4,000 ?

(a) Record the following events in 2007.
Aug. 10 Determined that the account of Jack Dune for $700 is uncollectible
Sept. 12 Determined that the account of Lori Lyons for $3,000 is uncollectible
Oct. 10 Received a check for $400 as payment on account from Jack Dune, whose
account had previously been written off as uncollectible.

(b) Prepare the adjusting journal entry to record the bad debt provision for the year
ended December 31, 2007.

(c) What is the balance of Allowance for Doubtful Accounts at December 31, 2007


My answer for part (A)
Aug 10 Allowance for D/A Dr. $700
Account Receivable Cr. $700
Sept 12 Allowance for D/A Dr. $3,000
Account Receivable Cr. $3,000
Oct 10 Account Receivable Dr. $400
Allowance for D/A Cr. $400
Oct 10 Cash Dr. $400
Account Receivable Cr. $400

(B) I know my write off is 3,700 from Jack and Lori's uncollectible accounts.
My recovery is 400 from Jack. Is my Beginning balance the sum of 2006 & 2007 Account receivables plus 500,000 from the 2007 Net Credit Sales?

Part A looks good.

Part B - You know your ending balance for A/R at 12/31/07 is $100,000. You calculate the allowance based on that. The question now is what is the current balance of the allowance, which will be the ending balance at 12/31/06 (same as beginning at 1/1/07) adjusted by the entries made in A. As in your last problem, once you know the current balance and you know the balance that you want for collectibles, you can make your entry.

Is 6,000 the balance of Allowance for Doubtful Accounts for 2007?

okay, I hope this is right:

Allowance for doubtful accounts:
beginning 4000 + 400 (recover) + 5300 (bad Debt) - 3,700 (write off) = 6000 Balance of allowance account?

This is the way I would show it:

$4,000... Beginning balance
-3,700... Written off
+ 400... Recovered
$ 700... Unadjusted balance
5,300... Adjustment at year end
$6,000.. Balance after adjustment

You have the right idea. I think the above just makes it easier to understand. Do you know how to write the entry now? I'm pretty sure you do.

You are correct that $6,000 is the allowance after adjustment.

Your calculation is must easier to understand. Yes, the entry should be:

Dec 31, 2007 Bad Debts Expense Debit: 5,300
Allowance for D/A Credit: 5,300
(To adjust allowance account to
total estimated uncollectibles)
Thank you again!

Correct, and you're welcome. It's important to learn how to show things logically which is why I made that post. As you progress in Accounting, it will make everything easier if you can practice this.