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Pincus Associates uses the allowance method to account for bad debts. During 2021, its first year of operations, Pincus provided a total of $250,000 of services on account. In 2021, the company wrote off uncollectible accounts of $10,000. By the end of 2021, cash collections on accounts receivable totaled $210,000. Pincus estimates that 20% of the accounts receivable balance at 12/31/2021 will prove uncollectible.Required:1. What journal entry did Pincus record to write off uncollectible accounts during 2021?2. What journal entry should Pincus record to recognize bad debt expense for 2021?

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Answer:

Ending Accounts Receivable = Services on Account - Amount Written Off - Collection of accounts receivables

= $250,000 - $10,000 - $210,000

= $30,000

Required Balance in Allowance for Un-collectible accounts at Year end = Accounts Receivable at 12/31/2021 * 20%

= $30,000 * 20%

= $6,000

Bad debt Expense = Required Balance in Allowance account + Amount written off

= $6,000 + $10,000

= $16,000

                             Journal Entries

Event                  General Journal                Debit     Credit

1          Allowance for doubtful accounts   $10,000

                  To Accounts Receivable                         $10,000

2         Bad debt Expense                           $16,000

                  To Allowance for doubtful accounts       $16,000

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